Eliminate back office

Posted on May 30, 2008 | 1 comment

Back Office: the departments in an organization that are not directly involved in generating cash for the company. For example, the IT department in a company, or the accounting department in a broker-dealer organization. These departments are absolutely indispensable, because if they were not, they wouldn’t exist.

But does it really make sense to have such a cost center in the organization? Specially when you have options around it. A couple of ways to eliminate the back office would be by outsourcing your back office to someone else or developing expertise in the work you do in your back office to an extent where you can make it part of your business offering.

Your back office is for some one else the “front office”, or the core business offering. So instead of putting resources in your back office and diverting your attention from your core business, a better option would be to look for the best choice out there and outsource your back office. Benefits of this approach are cost savings in most cases, since you will be choosing from a pool of service providers, and ability to pay more attention and resources to your core business.

Another option is to expertise back office work and spin-off the back office into a money generating business. This has been a very successful operation in the software industry, more since the advent of software as the service. The most visible example that comes to mind is Amazon S3 and related services. Amazon hosts big servers through its IT department to power its online store. Amazon now uses the expertise of its IT department to provide a host of services to enable other businesses use its infrastructure and do computing in the cloud, eliminating its back office by turning it into a profitable offering.

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Posted in Business, Technology

The search engine effect

Posted on May 19, 2008 | Comments Off on The search engine effect

Question: What has Google and other search engines done to the information available on the Internet? Answer: Widened the gap.

While on one hand the search engines have done a great job in organizing the infinite amount of information on the Internet and given access to it in a simple and straight forward way, they have at the same time created a great divide between what people watch and what they don’t on the Internet. Nine out of ten times, we end up looking at the top five to ten results on the search results page. Most of the times, we don’t even bother to go to the second result page. As a result, the page rank for the popular content keeps getting better and that of not so popular gets stagnated.

This is a fact. Now the real question is how to succeed in this new world of Internet where search engines are primarily the window to the infinite information and resources available out there. The goal is simple, be one of the top ten results for something and the best way to do this for any new player is by targeting the niche. Pick a niche, solve a particular problem in the best possible way, be the first choice for anyone who is facing that problem, build a community of mavens and inturn use this search engine effect in your favor.

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Posted in Technology

Is it just another medium?

Posted on May 15, 2008 | Comments Off on Is it just another medium?

Newspaper, radio, television and now Internet. People around the world look for mediums for information and entertainment. Looking at the evolution of each of these mediums, it makes sense to ask if this world wide web is just another medium? Well the answer is yes, and no. Yes, because in the end, it is a medium where the customers can get the information and entertainment they are looking for. But then like any other medium, the web has some uniqueness that stand out to make it more than just another medium.

We should consider a few different perspectives while answering this question. Let’s start with the content creators and providers. Internet has revolutionized this field in great ways. The content development on Internet is not something that is controlled by a few big networks. Anyone and everyone can write a blog or upload a video and become a content provider. And since there is no bar on who can become a content provider, the amount of content is infinite, the competition is fierce and the cost is close to zero.

Now let’s look at the monetizing aspect. Advertisements are the main source of revenue on any medium. On Internet, advertisers get a chance to maximize their return by targeting the customers using behavioral or contextual relevance. The interactive nature of Internet and the individual targeting of customers make advertising on the web standout as compared to any other medium.

One more aspect that we got to consider here is the end customer. Internet is more different for end customers as a medium than anyone else because here the customer is the driver. The customer is not bound to read the news printed on the daily newspaper or watch a sitcom at a given time on the television. On the Internet, the customer can pick and choose what they want in terms of information and entertainment, when they want and how they want it.

In the end, what makes the web stand out as a medium is its unique aspects of interactivity, equality, personizability and breath. Another way Internet is more than just another medium is the way it has affected all other mediums, be it newspapers online, where customer can get the latest news live or the television shows on the web, which the customers can watch on demand. For all other mediums, Internet has acted like a supplement to strengthen the customer base, making it really special.

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Posted in Advertising, Technology

Starbucks and non-free Wi-Fi

Posted on May 4, 2008 | 1 comment

I don’t get it. Entire city of Mountain View has free Wi-Fi. The New York City central park has free Wi-Fi. Almost every local coffee shop has it. So why at Starbucks one needs T-Mobile or AT&T subscription to connect to the Internet? Wi-Fi is something that is cheap and easy to set up, and I would expect the third place after home and office where Howard Schultz wants people to spend most time, to at least have free wireless connectivity.

Here’s some simple math to support my argument. AT&T charges $4.99 per month for basic Wi-Fi access. A cup of coffee at Starbucks is more than $4. Whatever deal Starbucks and AT&T have to let AT&T provide an exclusive service and the nominal Wi-Fi set-up cost which Starbucks will face to provide free Wi-Fi is pretty much mute if Starbucks is able to attract even a small number of additional customers who look for a local coffee shop where they can connect to Internet for free (instead of signing up with a service provider just to get Wi-Fi connectivity at Starbucks).

Yet another argument: Starbucks can ad power the Internet service and cut a deal with one of the search providers to make a particular search engine the default one while using Starbucks Wi-Fi, which can potentially make this “free” Wi-Fi service a money churning business. And now when Starbucks is facing competition from the likes of McDonald’s, providing free Internet access and making Starbucks attractive enough for customers to spend more time there is required more than ever before.

All this aside, I believe just going for free Wi-Fi will give Starbucks enough press blog coverage to provide that much required spark that might pull customers back to the coffee shop (something like the iPod touch announcement…) and make a statement that for Starbucks, customers still come first.

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Posted in Marketing, Technology

Revenue: reason and source

Posted on April 30, 2008 | Comments Off on Revenue: reason and source

Reason a customer pays for a product or service offered by a company is in most cases the source of revenue for the company. But then there are cases when this is not true. The reason a customer pays is one thing, which in most cases is the primary offering, but a completely different secondary or additional offering generates more revenue for the company. These are the cases when the reason and source of revenue are different, though mostly interdependent.

One of the most talked about examples in this case is Hertz rental car service. The biggest source of revenue here is the rental insurance that Hertz provide with its cars which is an additional and optional service the company provides when you rent a car from them (just for kicks, the second biggest source of revenue: used car sale). Another example to consider is the wholesale retail chain that loves to play the membership fee ballgame. Customers go to Costco because they like to buy stuff in large packs at a wholesale price. But Costco makes 70% of its operating income through the upfront membership customers pay for to get in the store. Similarly, consider Google. Customers go to Google primarily to search something on the Internet. Their main source of revenue: advertisements, the contextual offerings next to the search results customers are looking for.

It’s interesting to see an auto rental company, a wholesale store, and a search engine, each excelling in the core area of their business but making the biggest chunk of revenue from a secondary offering. The important thing here is to notice their focal point of operations. Hertz cannot shift its focal point from rental car business and generate the same revenue through insurance. They are able to generate rental insurance revenue because customers like their rental car service and buy insurance for the cars they rent. Similarly, Costco cannot sell memberships if the customers don’t find what they want from the stores and Google cannot generate ad revenue if the search results are not relevant enough for customers to keep using it.

This brings us to the real thing…the success mantra to keep the cash register ringing is: focus on the reason and embrace the source. When the source and reason are the same, its a smoother ride, but when they are different, you got to make sure that you provide great reason to your customers to come to you along with maintaining attractive revenue generating additional offerings.

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Posted in Advertising, Marketing

It’s all about the perceived value

Posted on April 26, 2008 | 1 comment

One thing that counts a lot for any product is its perceived value. Customers do not buy the product, they pay for the value that the product provides them. The more the perceived value of the product, less relevant is the price tag on it and vice versa. The concept of perceived value reconfirms the importance of de-commoditization. Commodity by definition is something that has low perceived value. So the best way to remove the commodity tag from a product is by focusing on what value the product provides to its customer and adding a differentiating factor to it to make your offering stand above the competition.

If a product can create high perceived value, it can earn premium. This is something that makes an iPod nano worth $200, makes a customer pay thousands extra to buy a BMW rather than some other mid-size car, and makes a bottle of Fiji water cost 200% more than a Dasani’s.

It is interesting to look at the perceived value of Internet products. How valuable is your email service for you? How much do you value a good search engine? How much value does a good social networking site provides you? I believe a lot. But still you pay nothing for it. The entire concept of high perceived value seems to fall apart on the Internet…well not really. The concept does hold true in the Internet world as much as it does anywhere else.

In case of services like email, social networking and information look-up, the customer goes for the service that provides the most value. In fact the perceived value is the only thing that counts here, because price is totally out of the equation. What is important here is to understand the perceived value of the service for the payer, i.e. the advertiser. The value for an advertiser is directly proportional to the value for the end customer. More customers go to the service that provides more value. This in-turn attracts more advertisers to it…generating more advertising revenue for the service…making it all about the perceived value.

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Posted in Marketing, Technology

Bundling: it’s solutions to problems

Posted on April 17, 2008 | Comments Off on Bundling: it’s solutions to problems

Flexibility is great for customers. It lets them choose and pick exactly what they need out of a set of offerings. But then there are some times when customers don’t know what all they need to solve a problem. And there are some other times when they have heard of some really cool products but are unable to figure out how they can be applicable to their business. These are the two cases, discoverability and applicability, where bundling comes into picture.

The idea is to target the niche by putting products together and adding bells-and-whistles to them, essentially creating a bundle for the target customers. Some really great examples of product bundling comes from the Microsoft Office. Microsoft Office has suites to meet the needs of any type of customer ever wanting to do anything with word processing or keeping inventory or preparing a presentation. These suites make it easier for customers to identify what all they need and how a product can be applicable to their needs. For example, with the help of bundling, a school can easily figure out which products out of the Microsoft Office family will be useful for it and how. Similarly, a small business owner can just pick up the bundle created specifically for small businesses and meet all her needs.

Some other great examples of bundling comes from Google. Google bundles their products in distinct areas to further simplify their offering to the niche customers. It could not be any simpler for a non-profit organization to discover and apply a dozen products including an online video community, a mapping software and a money collection service to their advantage without wandering around to get each one of them and figure their use. Similar offerings make lives of educators and businesses a lot easier as compared to otherwise.

Bundling is in some ways opposite to how we normally work. In normal scenarios, we look at a problem and work on it to figure out a solution. In case of bundling, we look at all the various solutions we have for different problems, identify who all are haunted by these problems and mix-and-match these individual solutions to develop a package for a type of customers. Just another time when we start from solutions and look for problems!

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Posted in Marketing

Customer is the King

Posted on April 9, 2008 | 2 comments

There is a common misconception when it comes to defining who or what rules an industry. Technology companies think technology is the king. Media companies think content is the king. Companies in real estate think location is the king. And we can go on and on. But the real fact is, be it any industry, it is the customer who is the real king. 

Take for example technology industry. A company can develop some out-of-the-world cutting-edge technological applications by making great investments in R&D. But if there is no customer problem that this product is going to solve, what is the use of it? Or in other words, how can it be successful? A technological application can be successful only if it solves some problem faced by the customer or fulfills a requirement of the customer. To find the requirements and problems of the customers  is not a trivial task. Sometimes you have to go to great lengths to discover these requirements, or make the customer realize that they have a problem. The right way to do this is to put efforts in discovering what is missing from the customer’s world, or how something can be made better, or what problem a customer is facing and then develop applications to solve those problems (and sometimes vice versa).

One interesting thing to ponder over is what makes customer the king? I believe two things play an important role here: limited resources and availability of options. Most of the time, customers have limited resources. This makes the customers prioritize their needs. Add to the mix the availability of options to fulfill those needs, and we can pretty much figure out the result.

In order to be successful in this customer-centric world, any business needs to focus on a few key things. The business needs to make sure that whatever it is providing, or whatever it is working on, is way up on the problem list of the customer. It must be able to evaluate the customer’s pain-points and then use resources to address them in the order of importance for the customer. When there is choice, there’s got to be a differentiating factor, and this is as important in a customer-centric world as anything else. So another thing to focus on is to make sure it stands out of the lot and can be distinguished from the competition. And one more thing, the business needs to make a commitment to make sure it has the best customer service in the industry.

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Posted in Business, Marketing

The global campaign against Global Warming

Posted on March 31, 2008 | Comments Off on The global campaign against Global Warming

One thing that has created lot of buzz around the globe is the campaign led by Al Gore against Global Warming. This campaign has made the common man at least aware of the fact that something needs to be done to address this environmental issue, and has won Gore the Nobel Peace Prize, an Academy Award and universal acclaim. This ongoing campaign led by the former United States Vice President, among other things, is a great marketing success (watch the 60 Minutes coverage of Al Gore’s campaign).

One of the marketing tactics used by Gore and company in this campaign is tp deliver the same message in a customized way to the people around the world. Following the global success of the documentary, An Inconvenient Truth, Gore acknowledged the fact that one size doesn’t fit all, and developed different versions of the same presentation with targeted content to back the message. The content is tailored to target an audience pool as narrow as evangelical christians as well as an audience as broad as a whole nation. On a recent visit to India, Gore delivered his presentation with focus on how India will be affected by climate crisis and how Indians can take steps to prevent it. The universal success of the campaign endorses the importance of targeted marketing in any field.

Another tactic used by Gore in spreading his word is viral marketing. Gore knows that he cannot reach all the people around the world with his message alone. So in order to address the urgency of the issue, Gore conducts seminars to train other individuals who take his message further by delivering it to the community and training others to do the same, hence leading to a chain effect.

Next Gore is launching a $300 million novel advertising campaign to spur a debate on the issue of climate crisis in the United States. Novel in the sense that it has roped in famous people from different walks of life to stand together to campaign for the issue. It has employed a theme that tries to make a point that people who disagree on all other issues, do agree on the need to address this issue. May be in six months or so, we will be able to pick up a few tips on effective advertising from this campaign.

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Posted in Marketing

Dependency on competition for survival

Posted on March 24, 2008 | Comments Off on Dependency on competition for survival

Consider the situation where your life support is your biggest enemy. That’s a graphical way to put the dynamics of the technology industry in many cases. There are several companies out there that leverage their biggest competitor to survive. For example look at companies like Wikia and Mahalo– the human-powered search engines gaining popularity on the Internet. How do people reach these sites today? The entrepreneurs behind these efforts confess that 90% of their traffic is directed through Google. How do they make money? They use Google’s ad sense to show advertisements along side their search results. Who is their biggest competitor? Well, of course, Google. So this popular search engine company Google is both their biggest competitor and currently the sole source of survival.

Similar situation arises when a company builds a platform. Success of the platform is measured on the basis of number of applications that are built on top of it. Most of the times, the companies that build the platform also makes applications on that platform, hence competing with other application makers. Hundreds of Internet application making start-up companies survive on the Facebook platform. At the same time, they compete with Facebook for the time people spend on the Internet and hence for the advertisement dollars. Another example that cannot be ignored here is Microsoft. Thousands of companies depend on the Microsoft Windows platform for their survival and hundreds of them compete with Microsoft on the applications front.

This dynamic in the technology industry teaches us one very important lesson. You got to continuously try expanding your customer base without any reservations by utilizing every resource in the best possible way.  The point is to stay focused on the end goal, doesn’t matter if in that quest, sometimes you end up depending on the company that might be your worst nightmare.

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Posted in Business, Technology