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Archive for August, 2009

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Eric Schmidt, Google as a systemic innovator at scale

Wednesday, August 5th, 2009

Recently, in light of the news of Eric Schmidt’s resignation/ouster from Apple’s board of directors, McKinsey & Co*. sent me a news update in my email. Included in this email was this copy of a 2008 interview with Eric Schmidt on “the future of business” (say that with an echo in your head). Damn, if it isn’t still a great read – especially for those of us who are operating businesses that are of or primarily composed of divisions that are web based.

A critical thing I think is lost when people think about Google, is do we really know what kind (archetype) of business it is? People tend to refer to it as a search engine company. Is it not more like a publisher of search results (revenue from ads against content)? Some have called it an advertising/media company and that seems to be true too. But as I’ve grown up under the illumination of G, I think what’s often lost is how fantastic they are at innovation and producing improvements and wonderful mutations of their products and services.

We have heard Mr. Schmidt speak on 70/20/10 rule that they use to manufacture innovations (illustrated wonderfully in this Charlie Rose interview in 2005 – skip to 8 minutes in, Mr. Schmidt defines 70/20/10 at about the 9:00 to 10:00 minute mark – if you don’t know this definition, you should), but as useful as that is to understanding the model. It’s what is said in the 2008 McKinsey interview about why that is the model that is interesting.

I’ve never heard Google defined as well as articulated in this article, I quote the CEO: Google’s objective is to be a systematic innovator at scale.

That is an amazingly bold direction that heretofore they amazingly pull off. They also do so in a number of ways, not just the in-house innovation that brought you email and the AdWords program, but also through intelligent acquisitions that sometimes get lots of press (YouTube), and other times do not (Urchin as basis for analytics).

The bottom line is that due to the increasing physics of the declining costs of manufacture and distribution in the digital world, survival becomes about speed to innovation (and speed to create new models to create revenue around ancillary service, such as the AdWords to Google’s search business and Gmail).

This dips into some interesting intellectual property questions that I will take on later. The faster the mutations of innovation and revenue models, the less important copyrights and patents become. Which, actually can be seen is a good thing. Intellectual property rights are a necessary evil to allow an artificial monopoly on an idea for a period of time so the innovator may make a return. The idea being that this spurs more innovation.

What we’re seeing more with the web is innovation through enthusiasm (open source), and also an increased speed as to what’s new is old again. Anyway, more thought on this, but just to leave the argument open, the question is. Would you rather have the Google search algorithm without the company, or the company in place without the search algorithm? That’s their management genius and I don’t think it’s lauded/studied enough.

So, it’s not what Mr. Schmidt says, “The wisdom of crowds argument is that you can operate a company by consensus, which is, indeed how Google operates?” It is that in the information age this is the only organizational model that will allow for innovation to occur fast enough to compete and win, you must operate through consensus. For how you do that, read the article and see what he says.

*Quickly, I’d like to laud McKinsey & Co for distributing year old proprietary content in an extremely clever way. This type of distribution innovation would do well to be on the to do list of more publishers. Where is the innovation in journalism today? For example, the John Updike obit in the nytimes.com, mentioned his famous article on Ted Williams’s last game written for the New Yorker in 1960. The New Yorker publishes that archive for free and is serving ads against it (albeit they could be more relevant). Oh, and maybe they’ll get an additional impression from you – it is a great article. But anyway – this kind of long tail revenue generation of publisher archives has a lot of small revenue in it. Why else would Google be scanning everything in sight? Oh, to promote the enlightenment of our brothers and sisters…indeed. However, as Mr. Schimdt notes, the long tail is important, but what the internet really does is make the head of the tail more massive. You must excel in both arenas.

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Sir Martin Sorrell: I Want Quantitative Marketing Businesses

Tuesday, August 4th, 2009

Well, Sir Martin Sorrell, Group CEO of marketing communication services giant WPP, wants a lot of companies, that’s his deal.  However, an article describing a recent presentation of his – he, Sir Martin, the best mind in media on media – discussed what is valuable to him in a company. Comparing these ideas/mantras of his against what we have been led to believe is the most important piece (users/visitors/readers), is worth doing.  Two newsworthy items from today articulate a few of his points in ways we should understand in trying to predict where the internet Spindeltop is, or better, how do we make revenue wells more efficient per strike (increase revenue per user/visitor).

SORRELL says: “surveys have found that client companies prize, above all, insights about consumers, which in turn, drive the value of quantitatively-measurable products and services”

News we’re excited to see, proving he’s right: Bit.ly revenue model.

Bit.ly gets it.  Praise be.  Bit.ly, for those unaware is an online “service/tool” that is popular with the tweeters that need to shorten urls to fit in the character requirements for tweets.  While the vast majority of bit.ly users find this to be the prime benefit, what I saw quickly after using it, was that I got more interested in their reports on the links I placed in the internet  They will tell you how many people clicked on your links, and some more advanced data, that can be simply useful.

Ok, so now you know bit.ly, let’s return to the model a sec.  Ok, so whether you are a SaaS or a publisher, you need to understand that length of engagement generally is the most important value to an ad.  This is a problem in the ad-serving model in the internet (another is ad networks, but that’s for another article).  For example, the reason Bloomberg began serving ads in its terminals, was because they saw doldrums in the trading day – traders staring in front of screens for long periods – high engagement.  Also, high engagement of a niche target audience (rich 20-40 somethings) equals ads you’d see in the Robb Report going into Bloomberg terminals.

On the flip, you have something like Twitter.  Twitter’s very existence is predicated on not staying long – to tweet is to be flighty.  So, I don’t know how you take time out of it (from what we see higher time on page creates higher clicks too).  It’s not a very valued ad space, so that contextual ad revenue model is going to be tough because of the nature of the system.

Bit.ly is the first company that we’ve seen that is coming at it in the way we believe more online companies should.  Just package and sell the data baby.  A little can go a long way.  And this also allows Bit.ly to continue to have a free subscription model.

As Sir Martin expresses, insights on consumers drive tremendous value.  Give’em insight packages for dollars.  Congrats to Bit.ly, Twitter will eat you now.

SORRELL says: “having a local focus is becoming more important as with having a global focus”

News we’re excited to see, proving he’s right: YouTube attacking local news (globally).

Can you believe the headline?  YouTube Goes After Local News, Attempts to Sign Newspaper, TV Partners.  Obviously that headline is coming from the web, because it could use an editor.  And, let’s understand I’m taking Sir Martin out of context (slightly) to make a larger point (which is a derivative of his original).  He was referring to global media companies needing to expand and be more knowledgeable locally – all true.  But so do networks and ad models.   This ability is the genius of the Google AdWords model – that they performed this so well – and oh, my they’re doing it again.

This takes us to another Sir Martin point: “We know that consumers spend 20% of their time onine – we also know that our clients only spend 12-13% of their budget worldwide online, that’s a disconnect that has to be eradicated.”

By the way, ‘eradicated’ is a word you use when you’re pretty serious, so I think he’s frustrated with this disconnect in the media world’s approach to reaching their audience.  And in this little story I think you see the smartest advertising company, Google, take on the question, “How do we monetize our video network?” And that they choosing to focus on Local TV.  Just think about that for a second.  Yeah, probably Google has some analytics on that. What’s old is new again.

*Our quotes from Sir Martin Sorrell, are located here (also a reasonable video).

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