Only slightly bent

I enjoy a good management book as much as the next person – oh, wait, probably a bit more as I actually do enjoy reading them. Anyway, it shouldn’t come as a surprise that they often promise a whole deal more than they can deliver, so I was happy to see The Economist taking a stab at the gurus a few weeks ago in the article The three habits of highly irritating management gurus.

Here’s one rather fundamental error in the guru literature:

Henderson et al put it even more bluntly in their HBR article:

Just goes to show that prediction is difficult – especially of the future. So considering the data the books are based on is more or less invalid, what good are these disparaged books by the gurus? In my experience, they do provide good alternative viewpoints into problems and help in taking a little bit of a different perspective to things. They help in generating some internal diversity in thinking and that’s always a good thing. And note that I say diversity; changing your viewpoint to align perfectly with the touted system in any given book is not diversity, it’s just altering the tunnel vision to a different version. Don’t use the guru books to merely change your way of thinking from one way to another – use them to broaden your thinking.

I also suggest you give the books’ authors as much money as their books are worth when compared to the promises they make, and borrow them from a library instead of buying. Other than just a few gems, it’s highly unlikely you’ll ever want to return to the books after reading them once. And if you and a hundred other people use the library book, the gurus get an appropriately small revenue slice for each read.

For a more detailed look at the topic, check out these resources:

• Andrew Henderson’s page at the University of Texas
• Deloitte: The persistence project
• Harvard Business Review: Are “Great” Companies Just Lucky? by by Michael E. Raynor, Mumtaz Ahmed, and Andrew D. Henderson
• .. and if you haven’t seen The System by Derren Brown, watch it here. It’s quite long and in multiple parts but very good. And don’t read the comments before you’ve seen it all.

This is a cross-post with my contribution at genmobilec.org

This might seem like a stupid question – after all, if you’re hooked on for example Twitter, your service is being run by Twitter. Right?

Wrong. It is in fact likely that the service is running on the benevolence and patience of venture capitalists and other investors who believe that somehow, someday, it will be profitable. Because right now, more often than not, Internet services aren’t profitable business.

Facebook was for long a loss-making enterprise; and they made some significant losses. It is only now that they might be reaching the break-even point. Twitter on the other hand is expecting their first revenue (i.e. any money coming in at all) this quarter. Of course, since most of these companies aren’t public, it’s difficult to know exactly their financials. However, it’s still a safe bet to say most are not even breaking even.

Now, turn the attention to mobile operators, who have been accustomed to very reliable sources of revenue (voice calls). They are now having to venture into uncertain territory in order to continue on the growth path and try to fight against the somewhat inevitable commoditization of their business.

In one sense, operators have had it too easy. SMS has in just 10 years become one of the most incredible money-printing machines any industry has seen. With SMS, the operators enjoy what can only be described as excellent (or absurd, depending on your point of view) margins. And the enabling equipment is a bargain; SMSCs often have RoI times measured in hours or days. Premium SMS has, on the other hand, enabled many successful mobile services despite the operator margins.

But there are limits to growth in SMS and voice calls, so operators are looking to data to capture that growth. It’s easy in theory – just get people to sign up for $10 or $20 or $30 per month data package and voilá, your ARPU is suddenly back on the growth track. In practise, however, it’s not so easy – mainly because people are often difficult in the sense that they need a reason to spend their hard-earned money So the operators must be able to give a compelling reason for customers to sign up for a data package.

One interesting thing many operators are doing when searching for that reason, is turning to third party services. What’s more, they are turning to the above mentioned unprofitable Internet and mobile Internet services. Over the past few months, I’ve seen entire advertising campaigns by operators such as Elisa in Finland and Three in Australia that were focused on promoting just one service – Facebook, and mobile access to it. Riding on the popularity of Facebook, the operators want to sell you data plans and even devices.

This presents another interesting aspect; people have come to expect that Internet services are free. People have also come to expect that mobile services are not free, that you have to pay ludicrous amounts for simple things such as ringtones. But what happens when these worlds collide in the form of mobile Internet?

The jury is still out on this one, but really it all boils down to a simple question: what would you be willing to pay for?

Because contrary to what some people like to think, advertising will be unable to support all the services it’s now envisioned to support – at least in its current form. So how about Facebook or Twitter at $5/month? Would you subscribe?

Most of us use many Internet services without paying much attention to the underlying business models – or lack thereof. The following observation by the Economist a couple of weeks back has a more profound impact than people are so far willing to admit:

Perhaps most dangerously, Web 2.0 still had only one business model, advertising, and the Valley was refusing to admit that only one company (Google) with only one of its products (search advertising) had proved that the model really worked. The older internet firms, Yahoo! and AOL, were doing their best to grab a piece of the action. But the “next big things” were selling negligible advertising, often on one another’s sites. Not one of them has become an advertising success in its own right.

Pretty much the only proven business model remains search advertising; what’s more, only one company has managed to really pull that one off. Think of all the Internet services you use, most of which are free for you to use. But since there are no free lunches, someone is paying for them. Chances are that most of the services you use are losing money and are thus unsustainable in their current form. Take Facebook for one – a loss-making business. Youtube? Estimated to be losing money at a whopping $500 million per year.

Clearly a service that only loses money cannot last forever. So, there are basically two options: come up with a way to financially support the service or eventually kill it. Advertising cannot feasibly support everything on the Internet and we can hardly rely on benevolent venture capitalists to keep pumping money forever, so in the end it’s you – the end user – that will have to pay for what you do. “Freemium” models work well for some services (e.g. Flickr), but it’s unlikely to work for all.

The billion-dollar question then becomes: what would / will you pay for?

While I already pay for several services, there are interestingly also services for which I’d like to pay but that do not offer a possibility to do so – in particular, I’m dying to pay for GMail; I would love to have a premium version of @gmail.com GMail with guaranteed up time and other nice things.

When one gathers the main media consumption patterns of people and sums up the figures, you end up with an interesting dilemma. For example, Finns:

• Watch an average of 3 hours 13 minutes of television daily [article]
• Listen to the radio an average of 3 hours 15 minutes daily. [article]
• Spend an average of 1.5+hrs on the Internet daily, though this varies a lot depending on which study you believe.
• Read the printed media about 2hrs per day.

That’s about 10 hours. Add 7hrs a day for sleep, 8hrs a day for work and 1hr for commuting and there’s no time for anything else but work, sleep and media consumption – and not even time for all of that. So it’s clear that exclusive media consumption – i.e. a situation where you for example only listen to the radio and do nothing else – must be somewhat of a rare thing. Do you actually ever only listen to the radio? Or even primarily listen to the radio?

This may not sound all too interesting. But consider this: the value of the channel to its main financiers – currently advertisers in almost all instances – is partly in how much you focus and pay attention to the channel. If you don’t pay attention to the channel, you’re likely not to pay that much attention to the ads either. And this is where it gets interesting because the two channels that are most conducive to exclusive or primary media consumption are mobiles and the Internet.

While I have no studies to quote about this, all it takes is some commonsense thinking: the TV is often used as a generic background noise generator in many families, with no real attention paid to it. The same goes for the radio during your commute. But whenever you use your mobile device, already the physical limitations of the device dictate that it must usually command your primary attention. And the same goes for the Internet – it usually entails reading and it’s difficult to primarily concentrate on anything but the reading.

There is a reason why Google makes so much money and why Blyk seems to be thriving.

It’s also why you should not underestimate the power of mobiles in the long run. At the moment, most of the money might be in voice calls and relatively stupid content like ringtones, but give it 10 years and you’ll hardly recognize the landscape.

Elsewhere, this ties in with Tomi Ahonen’s long-proclaimed thesis that mobile is the 7th mass media, with this exclusivity-argument perhaps being an additional point for the claim.

Even though the global downturn might not have even gotten started for real, I’m already sick of the media fanning the flames of a recession, depression or prolonged stagnation. Surprisingly, even generally respected papers are joining the ranks of sub-standard headlining and stories to go with them. The media coverage of the downturn has many really annoying features, but let’s take just one in this post:

Misleading headlines (or worse) are one thing that really tick me off. A typical misleading headline, this one from Kauppalehti, reads “Yhdysvaltojen talous supistui viime vuoden loka-joulukuussa 6,2 prosenttia.” (translation: “US economy shrank by 6.2% during october-december quarter”). Reading that, one would expect that the economy shrank by, well, 6,2% during that period, when in fact it did not. Whenever headlines like this are present, almost invariably the percentages therein refer to annualized figures, which are an entirely different thing from quarterly figures.

Another typical headline is offered by The Australian, hollering “Economy grinds to a halt”. If one would view things objectively, the headline should mean that economic activity stopped altogether which it, of course, has not done. That dramatic headline in fact stemmed from a 0.5% reduction in Australian GDP in 4Q08. That’s like saying that a car traveling at 205km/h “stops suddenly” when in fact it decelerates very very slightly and continues traveling at a speed of 203.975 km/h. “Grinding to a halt”? Hardly.

What most annoys me is that it’s quite natural for an economy mostly based on finite resources to eventually stop growing. For some curious reason almost nobody in the media, governments or businesses seems to understand this.

A few years back I wrote about a Krups blender as one of the best kitchen appliances ever. Well, as it happens, it finally gave out about a year after writing that post. Having been very satisfied with it, I obviously promptly went out and bought model that had replaced it, the Freshmix KB710.

Unfortunately, there was some kind of a flaw in the O-ring at the bottom of the blender (maybe a design flaw? In any case, it was very flimsy) and when making smoothies, it experienced occasional leakages. As this is not exactly desirable behavior, I was a little upset having expected a good product. So I contacted the Krups customer service, fully expecting to get what is the norm in Finland: lip service if you’re lucky.

What happened blew me away. They were exceptionally helpful and promptly sent me a new blender. And they even sent me a better model, the Blender Expert 7000 (pictured right) – at no cost to me. No need to return the old one either. That’s the kind of loyalty-creating customer service that is usually sorely missing from Finland.

I now have about a year of experience from using the Blender Expert 7000 and it has been one excellent blender. No complaints whatsoever – it crushes ice like it was born to do that and the larger glass jug comes in handy when making larger quantities. So I can and hereby am wholeheartedly recommending this baby.

And as a proof of the loyalty creation of this kind of customer service, when I needed a blender bar, I first looked for one from Krups – and purchased the GPA3. It has also been a very good little product.