Thank You

Thank you to everyone who contributed to my online Salvation Army Red Kettle. Thanks to your generosity we raised $660 to help the Salvation Army mission.

The Power of Observation

Today I needed to run a quick errand and ended up having one of those moments that makes you wonder about people in a WTF kind of way.

One of the managers that works for my wife is based in China and he loves good coffee but good locally roasted whole bean coffee is not an everyday sight in China so once a month I make a point of sending him 4 or 5 lbs of coffee that I get from a local company in Redwood City called Connoisseur Coffee. Today I drove down there, parked and as soon as I got out of my car I smelled a fantastic and very powerful aroma that was definitely coffee but also something else.

I walk up to the building and I’m on my phone not paying attention until I reach for the door and find a piece of plywood covering it. I look and the windows are blackx, a large section is plywooded up, the exterior of the building is charred and in front of me is a large pile of blackened and wet fire debris. There was clearly a fire.

As I’m standing there a woman walks up to me, walking around the pile of fire debris blocking her path on the sidewalk and rather hysterically says, and I am not making this up, “oh my god, what happened… did they get robbed!”.

More on this topic (What's this?)
China Transformation or Bust
China Economy Transformation or Bust, Part 2
Read more on Investing in China, HSBC HLDG, Wharf (HLDGS) at Wikinvest

Secondary Markets Bring Liquidity

This quote in an article about Zynga blocking sales of stock through secondary markets caught my attention:

As we have been consistently reporting on SecondShares, we believe we are now witnessing the emergence of a more liquid marketplace akin to how markets like the high yield market got started in earnest in the early 1990’s, post the Drexel Burnham Lambert collapse.  The preferred venue of trading today in the shares of private companies that enables these companies to be friendly to their employees, VC’s, founders etc. by permitting liquidity to flow is now being shaken out.

I recently had a discussion with someone about Facebook and I made the comment that with a secondary market providing liquidity for their stock and a unique ability to tap debt markets if they chose to, Facebook is in a pretty enviable position of not only being the only private company that Google cannot afford to acquire but also a company that can successfully avoid going public.

The interesting thing is that there is an entire tier of private companies that find themselves in a similar situation, Zynga being among them. This really is a story about liquidity at it’s core and what happens when large public tech companies find their the majority of their float being held by large institutional investors.

Salesforce.com (CRM) is a good example with 92% of the stock being held by institutions and 50% of that being held by just 10 institutional investors. This hasn’t exactly been a bad thing for Salesforce, which has outperformed Google (GOOG, 78% and 33%) and Microsoft (MSFT, 62% and 21%) by a pretty wide margin however it has trailed Apple (AAPL, 70% and 25%) by an equally significant  margin. Amazon (AMZN) is 68% and 32%.

By comparison, I looked up a large cap mining stock, BHP Billiton (BHP) and 6% of the stock is held by institutions with 3% held by the top 10 institutions. Exxon (XOM) is 47% and 18%… Wal-Mart is 33% and 10%… clearly large tech stocks are absurdly dominated by institutional investors if for no other reason than the floats on tech stocks are smaller while the investors they cater to have very large amounts of capital to put to work.

Private companies that rise to the level of attracting secondary market interest may not be thrilled about it but these markets do serve as a useful pressure relief valve that enables insiders to achieve liquidity without putting the burden of being public on the management team. I doubt pricing is affected dramatically one way or the other because scarcity is a factor in public markets as well it does relief management of selling their view of the world to a handful of large institutions who have the power to move the stock price on any given day.

No matter what angle you look at this it is an interesting story and yet again we come to a central question about liquidity and availability in the public markets, where volume has been flat to down (15% in 2010) and with publicly traded tech issues halved in the last 10 years. No thesis, no conclusion… however it is an issue.

Sony PS3, Still Can’t Get Any Love

Sony’s PS3… what can anyone say at this point? Inspired by the aggressive ad campaign that they have been running and the fact that I haven’t written anything about this train wreck in quite a while, I decided to check up on game console statistics. Not. A. Pretty. Picture. For. Sony.

In March 0f this year Sony finally discontinued the PS2 and interestingly Sony’s console sales have fallen like a rock. What I find particularly fascinating is that Nintendo’s Wii has also taken a bad tumble and while Sony is finally beating someone in the sales department they also have the misfortune of facing Microsoft with the white hot Kinect, which sold a breathtaking 2.5 million units in it’s first month.

At one point Sony outsold Microsoft 3:1 in console sales but the story of the PS3 is one of misreading the market, flawed pricing strategy, and what happens when the developer ecosystem is abused. A new ad campaign and jumping on the motion controller bandwagon won’t resuscitate the PS3 at this point, at this point Sony needs to go well beyond incremental.

Donate to the Salvation Army

Every year the Salvation Army helps countless individuals and families by providing shelter, food, clothing, and all with a caring smile. This year the economy and weather and creating need that far surpasses years past and this year I have once again established an online Red Kettle and a goal of raising $1,000 for the Salvation Army.

I’m off to a good start and am confident that with your support not only can we meet that goal but surpass it. Please click on the Red Kettle sidebar widget to the right and help me reach my goal.

Thank you for supporting the Salvation Army.

Smallcompanyitis: Death by a Thousand Committees

I realized something recently that in all my years had thus far escaped my attention and it is direct commentary on the distinction between large and small company culture.

A common belief is that small companies (startups in the Valley vernacular) are nimble because they can’t afford to waste time. This is quite true but the difference between successful small companies and meandering ones is that the successful ones value time over perfection and embrace people who are willing to fail as much as succeed. Okay so this much is probably known to you so bear with me.

A common misconception is that the path to decision in a small company is much quicker than that of a large company. It is wrong to assume this because of a unique characteristic of large companies known as turf. In large companies managers of all levels measure their power by the turf they control and a natural reaction to interlopers, other groups who wish to be party to decisions large and small, is to repel them.

In a small company it is quite common for every decision to be made by committee because the stakes are very high for failure and because the interpersonal dynamic in a small company favors consensus, even if the victim of consensus is decision. It is quite strange but I’ve seen it enough to know it is true… every action requires group consent.

I don’t wish to suggest that large companies are more nimble or quick to act than small but it isn’t because they are large, it is because they allow mediocrity in their management ranks and allow process to overcome action, but small companies are just as prone to mediocrity for a different reason, because it is allowed to happen as a result of the unwillingness of the people involved to just act decisively and unilaterally.

Pocket Data Connections

A couple of nights ago my internet at home was acting wonky and it occurred to me that I could go with plan B… my mobile phone. For an extra fee each month I get tethering on my Evo in the form of a mobile wifi hotspot. I fired it up, which thanks to 4G coverage now hitting me at home, I ended up getting a pretty speedy connection.

This experience was one of those small moments of epiphany that happen when you realize the way you have looked at something into a future period of time is actually inside out.

Like most people I view internet connectivity as something that is fixed that I consume with a specific device that I am using (actively or passively… increasingly devices are connected for system to system activities that don’t require me to be a participant). However, my recent experience suggests that we are on a trajectory where the portability is the network is the network and the devices we take advantage of may be shared.

Think of that for a minute… with data and apps both moving to the cloud and computing devices dumbing down to be input/output and a network connection, why do we even need to have our own personal computer? Could these devices not proliferate to the point that they are like grains of sand on a beach… just everywhere?

Another scenario, and probably the more likely one, is that the network is just something we will carry with us everywhere and connect to with whatever devices we also carry with us. In other words, network connectivity could cease to exist as a fixed infrastructure in places of work, home, and other venues that currently offer it as a service, either free or paid.

Irrespective of any future scenario one thing that is clear is that all-you-can-eat data is something we won’t enjoy for long, at least not until the efficiency of investment in broadband hits a point where supply once again exceeds demand.

Gawker Hacked: Seeing Past Your Nose

By now you have probably read that Gawker Media’s password database was hacked and over 1 million usernames and passwords spilled out on to the web. It’s a serious problem because most people don’t have unique passwords for websites they register for, which not only exposes the futility of passwords but also makes a serious case for an identity and authentication system like Facebook Connect.

However, did you ever wonder why media sites force you to register in order to comment? They want your email address and identity information for driving marketing and promotions as well as enabling data services businesses. They provide no real utility in exchange for getting you to hand over a piece of personal information… unless you consider their email products useful.

So how about this for a solution to the problem of media sites and data security… instead of requiring me to register in order to post a comment how about just letting me post a comment? When you consider the damage to Gawker’s brand and the fact that they have just deep six’ed their entire user information database, one has to wonder if they really believe that all those usernames and passwords they accumulated were worth the trouble.

Ban C-Notes?

Once in a while I read an article that is so absurd on its face that I wonder if the writer has penned it purely as satire or as a honey pot for trolls. Today was such a day when I read a piece in Slate by Timothy Noah that argued that the Federal government should stop printing $100 bills because they are used primarily for tax evasion and organized crime. Really?

People use $100 bills all the time for entirely practical reasons… I prefer to use cash to pay for things and large bills are easier to carry. It’s about being practical, not crime.

I prefer to use cash because despite what Visa will have you believe, debit cards are not as good as cash and much to Mastercard’s pleasure there are a great many things in life that are not indeed priceless. I use cash because I don’t want to see credit card processors and card issuers benefit from rent seeking on my dime.

To be clear I do not believe that regulatory agencies should intervene any more than they already do in payment networks and interchange transactions between consumer and merchant banks because the fact is that the paperless transaction system that we take for granted today is extraordinarily complex and the institutions that invest in these networks should be able to profit from them. I don’t shun credit or debit cards either, in fact I purchase a great many things online where cash simply is not an option.

American Express recently sponsored a “small business Saturday” event that I found ironic given that American Express is the least friendly of credit card networks and if anyone really wants to express support for small businesses they would leave their credit card in their wallet and use cash so that the merchant could pocket the 2% (or more) in fees that automatically go to the transaction network to process paperless transactions.

For a fascinating look at the economics of payment card networks read Todd Zywicki’s paper on this subject.

Get Satisfaction Pricing and Plan Changes

I’m reluctant to write too much about my day-to-day doings at Get Satisfaction just because I don’t want people to think I’m using my blog to pimp the company but it’s challenging because not a day goes by that I don’t experience something that adds to my body of knowledge about selling and delivering technology online.

Today was just such a day, the culmination of a dedicated and extensive effort to change the product plans and pricing that we offer under the non-enterprise side of the business, dubbed the Standard Plans. You may recall that back in August I wrote a post about the freemium goto market strategy and pricing challenges; today we took concrete steps to resolve some of the challenges we were facing as we optimized the business for continued growth.

So what did we do? First and foremost, we collapsed a product, our Facebook application, that was selling as an add-on down into several of our plan offerings, and when combined with similar moves a few months ago on the Enterprise side what this means is that we are no longer selling Get Satisfaction for Facebook as an add-on to any plan, it is now a bundled component in 3 of the Standard Plans and on Enterprise accounts.

We also redesigned the page that we were marketing the various plans on, changing the layout from a horizontal layout to a 2×2 grid. This may seem like a trivial change however the things that should be kept in mind is that you never have the luxury of sitting back and coasting when it comes to your marketing site. Small and large changes really make a difference and this new layout takes into account feedback on the previous layout, which was working quite well, and builds on our prior success.

Whatever the design choices you settle on, the objectives are the same. First and foremost you need to clearly represent the product options you are making available to efficiently direct site visitors to an option that meets their needs while eliminating every possible obstacle between someone hitting the page and clicking buy.

Different people like to see the product options represented in different formats so we offer a confiigurator page that allows people to select different features to arrive at the right plan option for them, and we offer a separate page where each plan is exhaustively detailed according to the features it contains. The configurator and comparison pages still need continued work, I know.

We still have the problem of too many plan options and next year I would like to resolve that but we first have to upsell a good chunk of our customers on the lowest price point, which is a very achievable. Our opportunity on Facebook is substantial and a clear path for upselling free communities and our lowest price point. We should have 2-3 price points on the Standard Plan business and an Enterprise option for the direct sales side of the business.

I also pushed through price increases on 2 plans. This was an easy decision based on what I knew the takeup rate on each plan was and the value we were delivering at each price point. The challenging part of increasing prices is deciding how to handle existing customers because while I don’t think a $10 increase adds up to much on an annualized basis, my customers clearly might think that so I should not presume too much. I decided to grandfather the current customers into the existing price for all of 2011 and I admit that this is a rather arbitrary amount of time but one that is generous and, I hope, will satisfy my customers.

We are also taking aggressive steps to market into the population of free communities that we are fortunate to have in our network. This has been a goal from day one but it turns out that it’s actually quite complicated to pull off and I think the best way to approach the problem is to not try to push promotions through to the entire population of free communities but rather chunk it up into subsets that can then be isolated and a customized promotion created specifically for their needs.

One conflict that I have yet to determine an appropriate resolution for is the tension between my desire to move our price points up while also retaining the free part of the business. I would also like to enable some paid plan features in the free product offering, thereby creating a defensive barrier for competitors and continuing ongoing efforts to increase customer satisfaction (it’s never too high). I will be working on this next but given the depth of our product development pipeline I am not concerned about plateauing in my efforts here.

Andy Wibbels put up a good blog post on these changes today, complete with an Oprah punch line.