2010 Google Predictions for Marketing industry

In this article, I had some fun with playing out the natural progression of the convergence of Internet-based ad technologies with TV advertising. I was also purposely provocative about what Google's drive for growth will mean for the ad agency business. Agency execs ignore this potential at their peril. A few agencies I know already get this while others are fighting yesterday's battles. Joseph Jaffe has an ongoing theme in his blog "Fixing the Ad Agency Mess" that addresses additional issues challenging agencies.

Update to 2/05 post: Saul Hansell of the NY Times wrote an article over the weekend that is receiving a lot of reaction in the blogosphere. For example, John Battelle (author of Search). Perhaps these predictions will happen sooner than I expected.

tag: google

The 3 Stages of Truth

Many highly successful new ventures had to go against the grain to achieve their success so this quote from Arthur Schopenhauer (German Philosopher) is appropriate for what most entrepreneurs have to deal with.

3 Stages of Truth

First, it is ridiculed

Second, it is violently opposed

Finally, it is accepted as self-evident

Two Stage ventures and the ESLC?

In part due to the lack of funding in the post-bubble days, my partners and I have seen a number of companies take a very lean & mean approach to their development process. They have then engaged a firm like Altus Alliance to take a similarly lean & mean approach to initial go-to-market entry. Tim Oren's has written his take on an approach along these lines that he characterizes as a "Two Stage Venture" where stage one is run extremely lean and stage two is when venture funding may make sense. One of the likely byproducts is a company that gets a better valuation than if they went for more funding earlier in the process.

PR (not ads) drive brand building

Time and again, I've seen early stage businesses waste precious resources on ad campaigns that have little impact. The problem is usually timing and technique. Brand (as opposed to direct response) ads usually have little impact unless they are built on a foundation of previous PR efforts. Well-regarded "ad expert" Al Ries published a book that details this insight in "The Fall of Advertising and the rise of PR" (see book summary below). There are nearly an infinite number of ad techniques. One example of direct response advertising is Search Marketing. While it's well-documented the success that Google and Overture are having, it's less known how many small technology firms have effectively used Search Marketing. Search marketing best practices and insights can be culled from sites such as iMedia's -- http://www.imediaconnection.com/search/index.asp. So much has been written about Search Marketing that I won't belabor it in this post.

Let me give you a brief example of PR -- I know of a firm that develops an object-oriented open source database that is building its early success on PR. Among other techniques, they have hired an influential blogger in that space who has relationships with many in the open source world. His credibility and access is establishing the firm as a player with this pure "PR" approach.

I've pulled some excerpts from the website "The Fall of Advertising and the rise of PR" linked to above.

"It's the end of the era of advertising domination. Today, great brands are built with PR.

Using in-depth case histories of successful PR campaigns coupled with those of unsuccessful advertising campaigns, The Fall of Advertising provides valuable ideas for marketers—all the while demonstrating why:

• Advertising lacks credibility, the crucial ingredient in brand building, and how only PR can supply that credibility;
• The big bang approach advocated by advertising people should be abandoned in favor of a slow build-up by PR;
• Advertising should only be used to maintain brands once they have been established through publicity.
  

In the high-technology field, Oracle, Cisco and SAP became multi-billion dollar companies (and multi-billion dollar brands) with almost no advertising.

We’re beginning to see research that supports the superiority of PR over advertising to launch a brand. A new study of 91 new product launches shows highly successful products are more likely to use PR-related activities than less successful ones.

Commissioned by Schneider & Associates in collaboration with Boston University’s Communications Research Center and Susan Fournier, an associate professor of marketing at Harvard Business School, the study is believed to be the first of its kind. We learned that the role of PR, while underutilized, was extremely significant when leveraged,” said the study."

Being a contrarian can pay off

Fred Wilson has another good VC Cliche of the Week -- The Lady Doth Protest Too Much. His post highlights the value of a contrarian view in products that may upset someone else's apple cart. It's well accepted conventional wisdom amongst entrepreneurs and investors that having a contrarian often is the path to big returns but it can be hard when people you trust/respect have an opposite view.

Microsoft feeling your pain

The Microsoft UK team put together a creative video on how they are striving to feel their customers' pain (video). When I say pain, I do mean pain. Pretty humorous...

On a more serious note, if you are a Microsoft watcher, keep an eye on Microsoft UK. My feeling was that they had the same smarts, work ethic and critical mass as the U.S. subsidiary/Redmond HQ but were relatively unfettered to do some innovative things that were increasingly getting bogged down by corporate bureaucracy in Redmond. Consequently, their successes often rolled back into Redmond often via UK team members moving to Redmond.

Uncle Bill’s Words of Wisdom

My Uncle Bill is one of the funnier people I know. He also happened to be a very successful Consumer Products executive usually playing the "new products" role. Upon his retirement, he shared a few of his words of wisdom...

1. Honesty is not only the best policy; it is rare enough today to make you pleasantly conspicuous.
2. The expedient thing and the right thing are seldom the same thing.
3. The best way to get credit is to try to give it away.
4. You cannot sink someone else’s end of the boat and still keep your own afloat.
5. If you get a kick out of your job, others will get a kick out of working with you.
6. It is not important that you come in early and work late. The important thing is WHY?
7. No one should knock research that has ever been helped by a road map.
8. Chicken Little acted before her research was complete. The competition ate her up.
9. A New Products person who can’t take a lot of punches had better win in the first round.
10. A man/woman of stature has no need of status.
11. Never trust a person who is Dr. Jekyll to those above him and Mr./Ms. Hyde to those under him.
12. You learn more from your defeats than from your victories.
13. Few people are successful unless a lot of other people want them to be.
14. Folks who think they must always speak the truth overlook another good choice...silence!

Hugh Macleod has a somewhat related list of how to be creative but is another list of guidelines to live by. Yet another I picked up off the bottom of a cook table on a rafting trip.

Making mistakes

"the greatest mistake we can make in life is to be continually fearing we will make one." -Victor Havel

During my time at Microsoft in the 1st half of the 90's, I used to joke that the reason we were having success was that we just made mistakes faster than anyone else (but tended not to repeat them). The other side of that coin was a willingness to take risks. I think those factors are the reasons why big companies that seemingly have all of the advantages often get beaten by smaller companies.

3 cliches

Fred Wilson has a regular feature on his blog he calls VC Cliche of the Week. It made me think about 3 cliches that I use that seem cover 80% of the situations in my life where I use a cliche. Here they are...

1. When you have a hammer, everything looks like a nail. I remember getting many chuckles with Ian Morris (HouseValues CEO) back when we were working at Microsoft on online properties. We saw a steady stream of people come into the online arena from the Office team. Their answer for everything was "this is just like Office...". As evidenced by the number of former Office execs that flamed out outside of Office, they proved that it was rarely the case. While I'm all for learning from past experiences, they can cloud your judgment if you rely on them too heavily.
   
2. The least common thing is common sense. I've observed this many times. In work settings, it's often someone who is brilliant in a particular discipline but has no street smarts/common sense.
   
3. What's the definition of insanity? --> doing the same thing over and over and expecting a different outcome. I'm seeing this with many businesses using some traditional advertising vehicles that have little accountability. Whether it's a big brand or a local business, many just do the same as they did the year before and wonder why they aren't getting the kind of growth in their business that they'd like.
   

Interactive Marketing Traction -- Agency view from Dave Smith of Mediasmith

The boon/bane of the Interactive Marketing industry is the constant flow of new technologies/tools that have the potential to be a great benefit to marketers or a big waste of time. A couple of the latest new tools are podcasting and blogs/RSS feeds. I thought it would be interesting to get the perspective from all sides of the equation (marketers, agencies, publishers, technology providers, etc.) for a few of the technologies that are at different stages of development. For example, "Rich Media" advertising is mainstream while Search Marketing is just becoming mainstream despite the phenomenal revenue growth. In contrast, Behavioral Targeting is still in the relatively early stages of market adoption. With the "buyers" that the technology companies are selling to, I asked one thought leader and industry veteran questions about how he went through the various stages of the adoption process (awareness, consideration, trial, purchase, repeat purchase). In particular, I was looking for the repeatable themes that would assist both sides of the equation for emerging new technologies to both accelerate adoption from the "sellers" perspective but also avoid wasting the buyers time.

I thought a great place to start would be with Dave Smith who has been in the industry 38 years and is relied on many throughout the industry for his thought leadership. He's quoted all over the place such as here and here.

We chatted about the early days of Rich Media (RM) when Intel was promoting it as a way to generate demand for faster processors back in '97 which is how he first became Aware of RM. The purveyors of RM were focused on site-side implementations (e.g., helping with shopping cart conversion, doing more interesting things on their websites than straight text, etc.) but were getting limited traction. He said companies would come in and show "interesting" stuff but there wasn't demand from creatives for this stuff. In his view, they had sales people out too early when they should have had people work on media research validating their tools as worth the premium (e.g., with click/view through rates 5-10x of traditional banner ads it wouldn't have been perceived as "expensive" when they understood how well they performed). Even today, he still feels the RM vendors are missing datapoints on most effective ad types, etc. that would help further accelerate its adoption. This continues through the Consideration phase where lots of time salespeople are out ahead of research that backs up the tool. In addition, they need to also create pull (help clients understand there's a need).

Lesson learned: While Dave was commenting on RM, the desire for Ad Effectiveness research spans virtually any technology area. While it can be very expensive from a small companies perspective, it's a classic case of you have to spend money to make money.

One of the key barriers during Trial was the RM tried to convince clients to trial but it was difficult to track because they hadn't coordinated with DoubleClick & Atlas (ad serving platforms) to figure out if it worked. From the agency and brand perspective, the byproduct was that there were hidden costs to execute that further exacerbated the "it's expensive and unproven" theme. Furthermore, there was a high degree of coordination required to get the Client, media and creative all had to be lined up together. In Smith's view, they are still not there yet.

Lesson learned: One of the key areas newly launched businesses usually underestimate is the Product Suitability which is a key element of the Sales Learning Curve. That is, what does the technology have to integrate with in the customer's ecosystem.

The driver for why more Purchasing started happening were results and buzz around results -- this was both an internal and external phenomena where generating internal buzz at clients or agencies was as important externally.

Lesson learned: Focus marketing efforts on PR. See my previous post on this topic.

Dave had some other nuggets worth sharing.

• He described the agency dynamic using Search as an example though it could be applied anywhere. He believes the search people have done it wrong by bypassing the agencies since agencies give them distribution (early Yahoo! recognized how they screwed up by missing big disti vehicle. One example of where Google is shooting themselves in the foot is that Google is setup where it's a new billing entity (transfer from client to agency for example) and thus drop client's positioning drops in ranking after a transition from a client-managed to an agency-managed search campaign.
  
• He also highlighted all the various decision-makers and influencers within an agency. The agency has media planners, account people, agency creatives, client (central media operation + product people) -- different story for each of those audiences. He gave the example of Carol Walker at Kraft (part of the centralized media buying team) who would say that it's OK to talk with product people but understand their products as well as the fact that their "budget" isn't purely media. It's critical that a seller also identify who can block within the aforementioned people. A blocking issue might be "we don't have creative resources to do that in your timeframe" or "I think those are like popups" and the buy is killed or delayed even though a bunch of other people were already bought in.
  

10 Steps to a Hugely Successful Web 2.0 Company

Union Square Ventures recently turned their website into a blog/conversation. One of their first posts is on building successful Web 2.0 companies. I highlighted a few of my favorites below. Go to the post for more color commentary and to see the complete list.

• Solve the smallest possible problem (that is still big enough to matter) for the user and know exactly what problem you're trying to solve.
• Get a responsive and chatty audience using the product.
• Launch. Now. Tomorrow. Every day.
• Distribute. Distribute. Distribute. Don't force your users to play on your site in a walled garden. Let them take the service and use it wherever they want.
• Be mindnumbingly simple. Extra clicks are deadly.
• Don't waste any money on marketing. I don’t think I’d go this far but I’d get pretty darn close. Doing a few smart things with PR, for example, may cost some money.

Start small to go big

Business Week has an interesting story about how the tables are being turned on where technology first gets adopted. It used to be the small & medium sized organizations waited for the trickle down from what was being implemented at large corporations. The article highlights how the reverse is now happening. That is, small & medium businesses are adopting technologies that are then migrated upstream. Salesforce.com and RightNow Technologies are two examples cited. This is instructive for companies developing their go-to-market strategies.

I've observed this going one step further. That is, there are a number of examples where consumers and end users are adopting technologies before businesses and/or their own companies. Recent examples include instant messaging, peer to peer technologies, social networks and blogging. They've all started at a grassroots level before moving upstream. In most cases, new features have to be added to address organizational issues but they've already overcome the biggest obstacle -- end user adoption -- so the feature investment is well justified. In the early days, with consumers/end-users, the bar for bulletproof software is lower which is a plus while the young company is tight on resources. Over time, the bar will raise for a variety of reasons (req'ts of enterprise customers, scalability, competition, etc.) and the organization may require more funding/resources to scale. Tim Oren had a good post earlier in the year on two-stage companies that fit with this approach.

Update: Payscale is another example of a business that started at the end user or small business level before moving upstream. This article highlights what they've done.

Kimo's rules to live by

I have no idea who “Kimo” is but these “rules” were written on the bottom of a cook table we had on our Colorado River rafting trip through the Grand Canyon. I liked them. I have a screensaver with My Pictures and this pic reminded me of those "rules". I floated the Colorado with a great bunch of people -- many who live by these.

1. Never judge a day by its weather

2. The best things in life aren’t things

3. Tell the truth, there’s less to remember

4. Speak softly and wear a loud shirt

5. Loosen up, the unaimed arrow rarely misses

6. He who dies with the most toys still dies

7. Age is relative, when you are over the hill you pick up speed

8. There are two ways to get rich. Make more or require less

9. What you look like doesn’t matter. Beauty is internal.

10. No rain, no rainbows.

Seven Founding Sins

David Beisel highlights common mistakes which often divert entrepreneurs off the path towards success in his post "Seven Founding Sins". I've excerpted some highlights below.

Extravagance. I see less of this these days though I have seen penny wise, pound foolish activity.

Taciturnity. Rapid progress and constant adjustment in a new endeavor requires continuous communication of these changes.

Greed. Holding too tightly to the percentage of ownership figure doesn’t allow room for a company to attract the leadership, employees, and investors that will maximize shareholder value – including the founders’. In a chat my partners had with Mark Leslie (Veritas founder/CEO) he mentioned that when there's a success it's rare someone complains they had 2% rather than 10% and conversely by not bringing in the right resources (while holding onto equity) companies often are doomed to fail and 10% ownership of nothing is exactly that.

Arrogance. There is a fine line between a beneficial pride of confidence and a dangerous arrogant hubris.

Indecisiveness. The beauty of a startup is that there are endless possibilities. The difficulty is to concentrate on one opportunity, not every opportunity. David saved his best for last -- I couldn't agree more.

Are healthcare software investments finally interesting?

Fred Wilson wrote an interesting post about medical data (both personal and scientific) moving online. I think he’s right on the mark and also provides an interesting commentary on life as a VC outside of Sand Hill Road. I’ve been a skeptic of healthcare/medical software as an investment opportunity for some time now. This wasn’t due to lack of need or lack of interesting applications being developed – when I was closest to it, there was a ton of both. Some developments have been changing my tune lately and Fred hits on one aspect. David Cowan hits on another aspect on his blog.

Why have I been a skeptic? As some of you know, I started the healthcare vertical market for Microsoft back in the early-mid 90’s. After joining MSFT a couple years earlier to help get the company into the enterprise software business, I was asked to take on that role since I’d worked in Accenture’s healthcare practice so I was the only one around who knew anything about healthcare. The extent of the direction I was given was “go get healthcare apps written on top of Windows NT”. It was a fun/crazy time working with some great people like Bill Anderson, Bill Snyder, Dan Bourgoin, Karen Anderson, Graham Clark, and some other fun/interesting folks. While we had great success getting market leaders to port their apps to NT and getting startups to develop new applications on top of NT and BackOffice, it was frustrating to see the glacial pace that the market would adopt the new applications particularly if they were from a young company. I remember one of the first weeks I was in the new healthcare job I went to the biggest healthcare I.T. show – HIMSS. It was as though I’d stepped back a few years in time. Vendors were proud of their “Windows Application” because they had a blue bar at the top of a black/green 3270 terminal screen. At the time, even on the desktop Windows was on only 10% of the Intel desktops even though other vertical markets it was anywhere from a low of 35% to most being in the 50-70% range (this was 1993 and Windows 3.1 had been out for awhile and Windows 3.0 had been there for quite awhile). While I didn’t care about MSFT’s desktop business (my focus was on server software), it was an indication of what I was up against.

Why was healthcare so far behind the times? There are many factors but there are a few that bubbled to the top…

• While healthcare was on the cutting edge on medical technology, it was very risk averse on the information technology side of things. There was a great fear factor of failed I.T. projects and they often emphasized that these applications weren’t mission critical, they were life critical. Even though Windows NT was quite stable even in its v 1.0 (though it was called Windows NT 3.1), it had the bear the burden of its DOS-based cousin’s sins of instability.
  
• Healthcare typically only spent about 1-2% of its overall budget on I.T. whereas other industries were 5-9% due in part to the previous bulletpoint. One reason was they didn't feel I.T. could provide competitive advantage. For that matter, many hospitals didn't even think about competition as they were quasi-monopolies.
  
• Because healthcare had long operated as a cost-plus business heavily influenced by government reimbursement, there was little focus on efficiency and excellence on the business side. A byproduct was that most of the best/brightest minds in business/I.T. weren’t drawn to healthcare. This was further exacerbated by the fact that healthcare has been fragmented and there are very few Fortune 500 companies outside of health insurance which isn’t dealing with the clinical side of the business.
  

A natural opportunity I had when I was ready to move to the next challenge after incubating and driving the first wave of growth for MS’ healthcare business was to go work for a healthcare software company. I never gave it very deep consideration as I saw very few opportunities that I thought would be able to compare with the growth opportunities I had at MS at that point in history. Over the years, I stayed in touch with my successors (John Carpenter, David Lubinski and now Peter Neupert who came back to MS after I left). John and David are great guys who did a fantastic job of taking the business to whole new levels. Last I checked, I believe MS’ healthcare business is ~$500M per year in revenue. Rather than staying in healthcare, I made the move in the mid-90’s to Internet-based businesses playing various senior marketing, business development and general management roles. 10+ years later, I think there is finally an opportunity to link my first and last 10 years in the industry together. Fred and David’s post captures most of my rationale why I think this will happen.

At the time Fred wrote this post, I had just begun digging back into the space starting to look at emerging opportunities -- so far, I've only come across one that looks interesting. Now I know that one of the places I’ll consider if I have a client that needs institutional funding in the healthcare/medical arena, Fred’s firm would be one that I’d consider.

Scobudsman?

I had an interesting experience with Microsoft recently. I have tons of old friends and colleagues still at Microsoft so you'd think I wouldn't have a hard time finding the right person to talk with at Microsoft. Particularly when the question I was trying to answer came from a Kleiner Perkins funded company with Vinod Khosla on their board. It was a relatively simple question for an Exchange product manager to answer. After a few different forays, the best answer came not from Microsoft but from a Microsoft partner.

It made me wonder if there isn't a role akin to an ombudsman that bigger software companies should have. In absence of having a clear process for handling non-standard questions or when someone gets stymied, should there be a safety net of having someone playing an ombudsman-like role? After exhausting my contacts at Microsoft, I thought of one person I don't even know -- Robert Scoble. From reading his blog over the last year+, he seems to play an ombudsman role as one of the hats he wears. Perhaps he should add to his list of nicknames by being called the "Scobudsman". I think this reinforces, yet again, one of the benefits of a company having a blog -- it gives people a way to connect to a human which is sometimes easier said than done. Undoubtedly, there's an Exchange blog but the blog searches I didn't find any that appeared to have a Microsoft team member associated with them. Perhaps I'll have a chance to chat with the Scobleizer at Web 2.0 this week and get his take on this.

The quote from one of the execs from the company that made the request captures the situation. I don't think this is unique to Microsoft though it may just be a problem of bigger companies.

Just curious --- but shouldn't it be a straight forward process within Microsoft to find the MS-Exchange 2003 product manager who has responsibility for that product? I can easily find these guys in almost every company I work with, but for some reason, the same techniques and tactics that I have used elsewhere just don't get me anywhere in Microsoft. I cannot seem to find anybody who can help me identify this person and how I can just have a brief conversation with them. Very puzzling to me. Perhaps this is one other dimension of "Microsoft biosphere".

Intelligent reaction

Adam Bosworth (VP of Engineering for Google) gave a presentation (launches the presentation app) at a Salesforce.com event that talks about how software develop has changed that is worth listening to. Instead of "intelligent design", he thinks the successful companies will have "intelligent reaction". That is, they will smartly react to customers/partners desires rather than acting omniscient. One of Altus' portfolio companies is a great example of this. 1st Choice Vacation Rentals has evolved their offering in direct response to innovative customers. This approach has allowed them to bootstrap and remain profitable even through the darkest days of 2001-2003 while expanding their product offering well beyond most of their competition. It's fun to see these sorts of companies scoffed at by better funded organizations yet they are the ones that built a sustainable business model.

Enterprise Sales Learning Curve Assessments

As readers of this blog know, my firm (Altus Alliance) established a relationship with Mark Leslie who has fathered the Enterprise Sales Learning Curve (ESLC). Not too long ago, I provided an update on progress on getting the word out on this ground-breaking thought process. One of the challenges that we saw when we initially heard Mark go through his presentation and read his whitepaper (PDF) was how to put his thinking into action.

One of my partners (Dave Jones -- industry veteran who cut his teeth at IBM, got Oracle into the enterprise space in the late 80's and then played startup exec roles and served as Entrepreneur-in-Residence for a VC before starting Altus) has taken the lead in building an offering that would be high impact for our clients without breaking their finite banks. He's architected an Assessment project that helps startup businesses accelerate hitting their revenue inflection point . He just led another one that wrapped up recently. I'll let his clients do the honors on the impact of those "ESLC Assessment" projects. [I try to limit marketing puffery on this blog but it's nice to see one of my partners knock it out of the park]

"We had recently begun our go-to-market stage of growth and commissioned Altus Alliance to complete an ESLC Assessment to help us optimize our revenue processes. Through their comprehensive interview and analysis process, and their extensive individual business experiences they brought real value to me and my team. The ESLC assessment process was very thorough, thought provoking, and non-disruptive, while the benefit of identifying key revenue and learning leverage points was tangible and actionable."

Nosa Omoigui, CEO -- Nervana (startup in the “semantic search” space)

“Altus Alliance was asked to conduct an ELSC engagement with us to support our efforts to identify and improve key points of revenue leverage within our marketing, product and sales organizations, and to help us determine the merits of new market entry versus other potential uses of funds. The process results were insightful and actionable. They hit it out of the park”

Tim Bauman, COO -- SM&A (a $80mm public firm in SoCal)

Top Ten Commandments of Venture M&A

Bill Burnham has an excellent post on the Top Ten Commandments of Venture M&A. I’ve picked my top 5 below. Go to his post to read the details on these 5 and the rest of the “commandments”.

1. Thou Shall Not Give a Strategic Investor a Right of First Refusal, Right of First Offer or a Protective Provision that Enables Them to Block a Sale.
2. Thou Shall Write All Customer Contracts And Partnerships Such That They Can Be Transferred to An Acquirer And/Or That Such Contracts Can Be Terminated With Reasonable Notice.
3. Thou Shall Not Enter A No-Shop Without Hammering Out All of the Key Terms and Conditions of a Sale First.
4. Thou Shall Not Allow A Buyer to Interview Employees Until At Least An LOI is Signed.
5. Thou Shall Discuss Exit Expectations With Management and Board Members Prior to Funding and At Least Twice a Year After That.