SaaS vs Shrinkwrap or Never trust a company not on Twitter

While eating lunch today, I started to think about the growing complexity of my company‘s expenses and decided it might be a good time to start looking at accounting solutions. The fact that my research began with a tweet is indication enough that I probably don’t fit anyone’s average consumer mold. But, I think some of the insights that came out of my experience are pretty fundamental and potentially extend beyond the ‘early adopter’ echo chamber.

First, I started down the conventional route by checking out market (and marketing) leader QuickBooks. Through some quick web searching, I found a few authoritative sounding comparisons that pegged QuickBooks as the best value for basic users (we’re just at the lower bound of even needing this stuff) — with the notable exception of the Mac version, which apparently gets less product development love than the Windows one. At $180, QuickBooks wasn’t really that daunting on the financial cost front. But, I was already starting to cringe on the usability/time cost side.

What I found myself really wanting was a web app (like Mint or Wesabe) for business accounting — something with a lightweight interface for connecting and organizing data from my financial services providers all in one place. And while I was researching products that might fit this bill, I started to think about why I had this innate preference for a web app (SaaS) over shrinkwrapped software. The business model of packaged software invites feature bloat, because it’s upgrade driven and you need to continually find ways to justify why Thingamajig 2009 Pro Edition™ is so much better than Thingamajig 2008 Pro Edition™. Software as a Service businesses have a much different (and arguably greater) challenge, they need to continue to create value for their customers month after month. Sometimes that value comes in the form of new features, but it doesn’t *have* to. So, you end up with a much more customer-centric product (what customers *know* they want after using it, not what they *think* they want before buying it — as humans are notoriously bad predictors of our own happiness) and a vendor who is truly interested in addressing your customer needs. So, unless there is an element of the problem a given software product is trying to solve that inherently benefits from the advantages of the desktop (i.e. local storage, access to the file system/peripherals, superior performance), I’d rather have the SaaS version.

The other thing that was on my mind when doing this evaluation was my incredibly positive recent experience on Twitter with the CEO’s of iPlotz and Balsamiq, both of which happen to be SaaS products. I realized that it really spoiled me and there’s no way I’m ever going back to the old regime of captive audiences and passive customers. So, my new rule is “never trust a company not on Twitter.” Now, that’s a bit reductionist — and, in Intuit’s defense, they are actually on Twitter (hi Alison 🙂 ). The real point is that today’s customer service equation needs to include how responsive the company is to your new product requirements and feature requests, not just how quickly they fix something when it’s broken or answer a question when you’re too lazy to read the instructions. As much as I appreciate Intuit’s presence on Twitter, I highly doubt Alison is able to change Intuit’s release schedule to get that new feature I want out to me sooner. By virtue of the packaged software business model, she is not adequately empowered to address my customer needs.

Through my research and a very handy post on my friend Leonard’s blog (thanks for the tip Carrie), I found two SaaS solutions for small business accounting: LessAccounting and Xero. They’re both about the same price ($~25/month), and Xero seems to have a slightly superior feature set (automatic syncing with your online accounts is a biggie). But, LessAccounting clearly had the edge in customer interaction. LessAccounting has a very active corporate Twitter account and both founders have personal accounts, they use Get Satisfaction and there are 4 topics on their Get Satisfaction page that have been updated in the last 24 hrs (I also checked out the activity on the Get Satisfaction accounts of both founders), and, last but not least, they have a sense of humor (be it a slightly mean one 🙂 ). Xero has a very active corporate blog and they seem to be quite responsive to their customers’ comments. But as a prospective customer, I would really like to have some better ways to interact with Xero than sending them an email or leaving a comment on their blog. (Update: Phillip from Xero responded in the comments that they do in fact have a Twitter account and an in-product feedback mechanism.) Get Satisfaction and User Voice are both great names, because when you use their products as a company that’s exactly what you do: give your customers a voice and the satisfaction that it’s being heard.

When shopping for SaaS, you’re choosing a partner in innovation. So, the future direction of a product is maybe an even more important consideration than the current feature set. And while LessAccounting can surely replicate Xero’s features, can Xero replicate LessAccounting’s customer-centricity? They both offer 30 day free trials, so I’m going to try both and make a decision in a month. And who knows, at $180 for QuickBooks Pro I may decide shrinkwrapped software is the more sensible way to go this time around (but, that doesn’t mean I have to like it 😉 ).

Update: Wow! This is starting to freak me out. I write these things to capture the distillation of the things I see out on the interwebs that I like and dislike, mostly for my personal benefit in thinking about my own business. I don’t do so really anticipating to hear back from the companies about whom I’m writing, but I guess I’ll just have to get used to this whole blogging thing 😉 .

Thanks to Phillip from Xero and Allan from LessAccounting for your responses in the comments and for engaging in the conversation. Phillip corrected me that Xero does have a Twitter account, which I updated in situ above.

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A Twitter Marketing Success Story

A couple of days ago, I wrote a post on my company blog about Twitter from a marketer’s perspective (I think it’s pretty good, so go read it when you’re done here 🙂 ). This post is about my experience with Twitter on the other side of the aisle — not just as a consumer, but as a *target* of marketers (in a good way).

Last night I was trying out iPlotz, a new online tool for doing product design. I own a license for the desktop version of Balsamiq Mockups, a competing product. But, iPlotz had a couple key features Balsamiq didn’t. So, I was really bummed when iPlotz changed the limits for free trials without warning (the day before I had created 7 wireframes in my iPlotz account, and now it was telling me the limit was 5). Since I was sitting at my desk at home and had no one to bitch to, I bitched to Twitter:

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I wasn’t really expecting a reply from anyone, let alone one from iPlotz. (At most, I had been hoping to publicly shame them a little bit for the not cool practice of changing the rules without notice.)

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I was flattered that someone at this company was actually listening to me. All of a sudden I went from being in a bitchy mood about their policy faux pas to wanting to compliment them.

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Wow! I was kinda just being patronizing before, but this actually sounds like a really cool product. Even though I just dropped $79 on Balsamiq a few months ago, I might have to buy *this* one too when it drops.

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And that’s that, right? If it had been, it would have been an interesting (if not unique) example of an up-and-coming start-up reaching out to an ‘early adopter’ through social media.

But, that wasn’t the end. When I woke up this morning, I found a reply from Balsamiq.

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It turns out they *do* have the main feature I’ve been wanting, I just didn’t realize they had released an update. And in learning about this one feature I wanted, I also learn about another new feature I love.

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Well as long as I have their attention, I might as well speak up for that other feature I’ve been longing for.

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HOLY SHIT!!! Not only are they working on the new feature, but they’ve put its design up for review by their users (via Get Satisfaction). I’m in LOVE! First, to put in my $0.02 on the proposed feature design. Now, where’s that tweet Robi sent a couple days ago asking for design software recommendations (on which I originally remained silent)?

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I know Robi can be a cheap bastard sometimes, so I’d better make clear to him how great this really is. 😉

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First of all, this whole episode struck me as rather phenomenal — I literally just had 2 brands (and not just some PR flacks, but the CEOs of both companies) competing for my business on Twitter! And while having Pepsi and Coke compete for my business on TV is the main reason I don’t watch it, I came away from this experience on Twitter with a very positive sentiment about both companies (even though I came into it dissatisfied with both of them). And it’s not just that I was flattered to be conversing with the CEOs, it could have been any employee as long as they were empowered to address my needs (like Frank aka @comcastcares).

But in my mind, this goes beyond Twitter and really showcases the power of social media as a CRM tool (what is the difference between ‘marketing’ and ‘CRM’ other than connotation, really?). As Debs wrote:

The social web can actually provide much deeper and more interesting connections for customers and companies than simply being a marketing channel – it ties into the entire product lifecycle.

By showing that they’re listening to me and bringing me into the process, Balsamiq just turned me from a disenchanted user to an enthusiastic evangelist. Not only are they tolerating my Monday morning product management, they’re inviting it. Bringing your customers into the product development process has the dual benefits of helping you build better and more customer-centric products and making your customers your most passionate sales people (because after all, it’s their product too).

Now, go buy Balsamiq Mockups! 😉 (And, go read my post on quick wins for brands on Twitter.)

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Happyjoel on the CBS Evening News

Cross-posted from the Snowball Factory blog

Last week, our friend (and first client) Joel Moss Levinson, aka Happyjoel, appeared in a CBS Evening News with Katie Couric segment called Cashing In on YouTube (watch it below). For Joel, this follows an appearance on the Tonight Show with Jay Leno, a profile in the New York Times, and (our personal favorite) being named an AccessHollywood.com Rising Star. As you can see in the clip below, the majority of this coverage has been driven by the novelty of Joel’s success. He’s a guy who subsists entirely by making amusing music videos for products for which he has no personal affinity — what news producer wouldn’t love this story?!


Watch CBS Videos Online

For us though, the real story isn’t the wackiness of Joel’s success but rather how he has achieved it. Of course, having the ability to come up with witty lyrics about how awesome watermelons are and the time and energy to scour the interwebs for brands looking to crowd-source their marketing are necessary, but they’re not sufficient. Michael Buckley, the other online video personality covered in the CBS News segment, told the NY Times “I was spending 40 hours a week on YouTube for over a year before I made a dime.” Like Michael, Joel does a lot more than just what you see on screen. Arguably, making the videos is the easy part (at least for someone like Joel) — the real challenge has been building and cultivating the loyal fan-base (or as Joel calls it, his “contest voting army”) that has made him such a newsworthy phenomenon.

As of this writing, Joel has:

Each of these relationship channels has different strengths and weaknesses, and we have achieved a good measure of success using them in concert through best practices and a substantial time commitment. But, the system is far from perfect. In addition to the redundant work required to build and maintain relationships through all these various channels, it is very difficult to identify and de-duplicate the individuals across them, and it is basically impossible to have a cohesive view of what is going on in your fan universe.

While 800 lbs brands like Britney Spears or 50 Cent have enough clout to ask their fans to sign up for new services, the rest of us need to find effective ways to reach our potential fans where they already live online. YouTube, Facebook, Flickr, MySpace, and other popular social media services provide access to their huge existing audiences, but the relationships you build through them have to be on their terms. We’ve learned from experience in the trenches with clients like Joel and Handsome Donkey, and we’re hard at work on a solution that gives independent online media brands the best of both worlds: access to existing social media audiences with greater control over the fan relationships it generates. So, stay tuned!

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This Week in Shark Jumpage

I just came from checking out Lucas on a Social Media Club LA panel on something about technology and music, apparently there’s some kind of intersection there. Who knew? Anyway, the organizers projected a live stream of all the tweets tagged with #smcla on a screen behind the panelists during the entire panel. 

SMCLA Twitter Stream

This has become a pretty common “feature” of tech panels nowadays, and I’m heareby asking organizers to knock it off.

There are a couple of reasons I feel this way. First of all, I don’t know how anyone in the audience could really pay any attention to what the panelists were saying seeing as the *entire audience* seemed to be on their mobile devices or laptops writing things to show up on screen (myself included). Secondly (and more importantly), the majority of the shit that went up there was totally lame (with the noted exception of this Sarah Palin tweet). Most people who get up to speak during Q&A time at panels are really doing it to hear themselves speak and try to impress the panelists and/or audience (“I’d like to pose my question in the form of a statement about how awesome I am, please validate/hire/sleep with me”). The good news is those Q&A sessions are generally short, and there is a physical limit on how many people can actually speak on the mic at any one time. Well when you put that Twitter stream up there, every self-important douche in the room can post his/her little cry for attention, and they generally do (again, including me).

Don’t get me wrong, I think real-time audience feedback is a valuable tool to keep any panel on track (I’m too lazy to search the web for the numerous stories of panels turned around by moderators monitoring audience tweets or find the right link to the Sarah Lacey SXSW debacle). But, the devil’s in the details and you’ve got to implement it in a way that preserves the right incentives for the audience to participate — i.e. improving the conversation, not trying to steal the spotlight. I was actually at what I believe was the first conference to use an interactive real-time feedback system. It was the >play conference in November 2006, and I blogged at the time about how Michael Arrington was a total prick for asking the organizers to take the SMS-based audience feedback system powered by Mozes off the screen behind the panel (ironically, this panel and the Valleywag story that came out of it may have driven the first significant tipping point for Twitter adoption).

As much as it pains me to agree with Arrington nearly two years after the fact, I do think there is a reason to have a moderator and a good moderator should be entrusted with the power to steer the panel discussion. The moderator should definitely be watching the conversation about the panel on Twitter in real-time and reacting accordingly, and individual audience members who want to have *virtual* side conversation should feel free to do so on their laptops or devices. But, don’t give individual audience members the opportunity (and encouragement) to distract the rest of the audience by putting their comments on (or above) the level of the panelists.

If your audience is that smart, put them on the panel. And if your moderator needs to be babysat by your audience, get a better moderator.

I Shot Abraham Lincoln (at the TechCrunch50)

As my (legion of) followers on Twitter know, I’m at the TechCrunch50 this week. I’m here helping an Israeli startup with the launch of their product Flyscreen in the Demo Pit yesterday and today (cause I just *love* booth duty that much).

As painful as booth duty is, yesterday was actually fun because there were some cool people to hang out with. I smuggled in Eric, ran into Debs, and got to meet Andrew and Ben. I’m not sure if it’s just TC50 or the “Web 2.0” conference scene in general, but there was definitely a pervasive vibe of shark jumpage in the air and anyone worth caring about was basically taking the piss out of all the other people taking this thing way too seriously. And now, for the footage…

There was a dude walking around dressed as Abraham Lincoln (don’t ask), and I had recently been told that my current ‘stache made me look like John Wilkes Booth. So, we decided to film a dramatic reenactment of the assasination of Abraham Lincoln in the TC50 Demo Pit. Andrew was on camera, Eric made it happen by being the only one with the balls to proposition Abe, and the dude playing Abe was a real sport (and a seriously talented actor 😉 ). Enjoy!

After that, things really started getting out of hand. While I got pulled off to do some demo work, the crew decided to move on to trying the world’s worst pitch on an unsuspecting VC. Hilarity ensues…

P.S. Even though Eric claims to have come up with this pitch idea independently, there is actually prior art.

Consumption as Self-Expression, Lifestreaming, and the Social Signal:Noise Ratio

My buddy Hooman just wrote an insightful post expounding on a phrase I’ve been using for a long time now (and have yet to hear elsewhere, so let’s make it a meme baby!): consumption as self-expression. It’s a pretty self-explanatory phrase and examples include: Last.fm favorite artist or recently listened songs badges on your MySpace page (or their pretty cool Facebook app); publishing your Netflix queue via RSS; using a plug-in like Postalicious to add your Delicious bookmarks to your blog (as I do); or services like All Consuming. Each of these services has a primary value proposition to get you to give them your consumption information other than republishing it out to the world (i.e. Last.fm = discovering new music; Netflix = getting the movies delivered; Delicious = archiving bookmarks for personal reference; All Consuming = getting recommendations on other stuff you might like). But, the ability to share your consumption information back to your social network (or publish it to the world, if you so choose) is becoming an increasingly important secondary value proposition.

As an example of how powerful the self-expression value proposition has become, take Flixster, which became a top app on Facebook by getting people to re-enter much of the ratings information that they had already given to Netflix just so they could have a social experience around it with their friends. Apps like Flixster and What I’m Listening To (by Last.fm) finally start to address the forgotten backwater of the social network profile page that the “Interests” section has become. Like the appendix or the vestigial tail, the Favorite Books/TV Shows/Movies/Music fields on today’s social network profiles are left over from the first designs of Friendster (or maybe even before) and have done nothing but atrophy since. Unlike your tastes, these fields are static, and they’re totally disconnected from your consumption experiences. So, I’m all about the apps that have allowed me to leave the ‘Favorite Movies’ and ‘Favorite Music’ fields on my Facebook profile blank and instead show my friends what I’m actually watching and listening to.

That’s the good part of consumption as self-expression, IMHO. But, I’m increasingly finding a bad part too and it’s the growing (g33k) trend of lifestreaming. I see the value in wanting to broadcast a consolidated feed of everything public you’re doing across the web to those interested (in fact, I’ve already installed a lifestreaming plug-in on this blog and have yet to set it up — you can also use Friendfeed or MyBlogLog). I’m just not particularly interested in subscribing to anyone else’s. I may want to *pull* this information, when I’m trying to learn about what a person likes or has been up to, by visiting his Facebook page or blog. But, I have negative interest in having this information *pushed* to me at all times, a la Friendfeed, which I only use as a broadcast medium and not for consumption.

This is where the whole idea of the social signal:noise ration comes in. In his original post on which I commented, Hooman distinguishes between “machine-generated” and “human-generated” updates. The machine-generated ones are what I call consumption as self-expression, while the human-generated are the ones like blog posts, Flickr photos, or Twitter messages that require some kind of proactive communication on the part of the publisher. In my recent post about Twitter, I talked about how the on-demand nature of the Internet enables us to have a signal:noise ratio approaching infinity and how Twitter was the restorative “white noise of cyberspace.” But, I see full-on lifestreaming with machine-generated updates and all as going too far. So for now, I have imposed a crude filter to limit what noise I let in: if you didn’t take the time to generate the content yourself, I ain’t subscribing to it.

And, even that may not be enough. As the circle of people I follow on Twitter has expanded (and I *only follow people I’ve actually met*), I’m finding even that increasingly annoying and less the valuable randomness generator it used to be. Over beers today, Jeffrey suggested maybe as more people start using Twitter and the average number of people being followed grows, there will be less “updates on what I ate or when I went to the bathroom.” Whether it’s some kind of social networking mores or a technical solution like Laurie’s Havoc algorithm (ask him about it), we’re definitely going to need something to steer the social web back to a more sustainable signal:noise ratio.

If you love something (and/or want to make money from it online), set it free.

This past Sunday, I had a long discussion about the NY Times article on Time-Warner’s new content-centric strategy with my father, who happens to be in the film business. While the article touched on some of the complexities that exist in the legacy value chains for both movies and tv, I thought it glossed over important details and ended up being somewhat contradictory. On the one hand, the author labels the move to spin off T-W Cable as “eviscerating the once-popular corporate notion peddled by business consultants and merger specialists that content and distribution should reside under one roof.” But just a few paragraphs down, he talks about T-W’s interest in NBC Universal, primarily as a distribution outlet for the tv shows T-W produces.

In theory, a pure-play content company would *just produce content* — it wouldn’t program (i.e. tv network), it wouldn’t distribute (i.e. movie studio), it wouldn’t deliver (i.e. cable/satellite provider). This type of horizontal focus (or modularization) is advocated by Clayton Christensen once a market of vertically-integrated solutions has reached a “good enough point” for consumers, because it enables the firms at each layer in the value chain to focus on what they do best and exploit best of breed solutions available in the rest of the stack to do the rest, thus maximizing overall efficiency and profit. In our terms, a company purely focused on making the best content is free to choose *whatever* distribution solutions will make it the most money from that content. In NewTeeVee’s analysis of this same NY Times article, they said “How we watch is all the same. What we choose to watch, however, is a different story.” In other words, distribution is the commodity and content is the differentiator. I couldn’t agree more if the only channel in question is online. But as long as content creators want to exploit their content beyond the Internet, there is a different set of rules, and those rules generally extend to what those creators can do with their content on the Internet as well.

Studios can no longer claim ignorance of what consumers want — Jeff Bewkes (T-W CEO) tells a story of how he was told by file-sharers “We’ll pay for movies if you give it to us the right way” — but, they are now claiming (however ironically) impotence to deliver it —  that the major stakeholders in their other (more lucrative) means of exploitation, like Walmart (DVD), theater owners (theatrical, duh), and cable/satellite operators (PPV), won’t let the studios innovate too much online for fear of cannibalizing the other channels. As much as this may be true, the studios are pretty happy to have their hands tied because they already know how to (and do) make a lot of money from those other channels and they have barely started to figure out how to make real money online. Going back to Christensen, this is a classic example of an entrenched incumbent seeing disruptive innovation coming a mile away and doing nothing, as epitomized in this quote from the NY Times article:

But until technology forces Hollywood’s hand — Mr. Bewkes suggested that it would take three to five more years before high-definition videos are delivered conveniently over the Internet — the industry will retain its grip on sequential windows of release.

This all stems from the fundamental discontinuity of extending an offline media business online. In the offline world, control is the key to success — it is what enables the winners to exploit the inherent inefficiencies in the system at the expense of the losers and, to no small degree, consumers. In the online world, attempts to retain control generally stifle growth by limiting exposure — you have to be willing to let go of your content to a certain degree and you need to build business models designed to take advantage of that approach. Not only is this counter-intuitive to a lot of conventional media executives, who have built careers (and personal fortunes) retaining the tightest controls possible, but it may also be in direct conflict with other important revenue streams, as we see with T-W above.

Unfortunately, there is no easy solution for those trying to bridge the gap. Some companies, like the NY Times itself, are leaping across this digital divide while they still can and largely abandoning efforts to artificially protect their offline business from the specter of cannibalization. And, they seem to be having some success. This past Sunday evening, there were five NY Times stories on the front-page of Techmeme (the next closest sources were TechCrunch and CNET with two stories each), which should be driving some solid traffic to nytimes.com. By making their high-quality content available for free on the web, instead of holding it back to drive paying offline subscribers, the NY Times is aggressively driving readers (and thus ad revenue) to its online business. While those online readers may not be as lucrative as the offline subscribers today, there’s lots of room to improve online monetization if you have the readers, and offline readership is only going down and fast. On the opposite end of this spectrum is the Philadelphia Inquirer and their recent moves to consciously make their online offering *less* competitive in preservation of their offline business. T-W and the rest of the film industry seem stuck somewhere in the middle — keeping abreast of what consumers are demanding and giving them just enough incremental progress to remain satisfied without actually doing anything really disruptive to the studios’ other businesses. Christensen would argue that waiting too long on the offline side will preclude one from successfully making it to the online side when it’s finally more attractive (see Recording Industry). I guess we’ll see which side Bewkes and company end up on when “technology [finally] forces [their] hand.”

The Absurdity of Twitter

Only something this tasteless could truly capture the frivolity of the compulsive Twittering that afflicts me and many of the people I know. Deep-down, we all know we could never get away with this level of self-important blather in any other communication medium (well, other than lifecasting, of course). But as long as others keep “listening” (following != really listening) and retaliating with their own narcissistic brain-farts, we continue to groupthink ourselves into the delusion that the emperor is wearing some skivvies and it’s completely acceptable behavior to broadcast an announcement of your recovery from a hangover, random facts you learn from reading the pamphlets you get at jury duty, or a poll on how you should waste away your afternoon to everyone you know and even more people you don’t (just, whatever you do, *never* *ever* update people on your flight delays at the airport — sheesh!). My personal favorites are the recursive loops of self-importance (better known to the self-important as “meta-tweets”), like announcing on Twitter that you’re blogging about how stupid Twitter is. But, if the Nielsen TV ratings ponzi scheme can last as long as it has, I, for one, will not be dissuaded from spewing the mindless ephemera of my life out into the ether by a little incisive snark from a couple of “professional” bloggers. Enjoy 😀

In writing all of that, I did get to thinking a little bit about why (relatively) intelligent and well-adjusted people are totally comfortable with our behavior on Twitter (at least until its absurdity is temporarily called out, as above). The answer may be that it isn’t, in fact, that absurd after all. For people who live their lives at the leading edge of consumer technology, our signal:noise ratio in daily life is rapidly approaching Infinity. Is it possible that the human condition demands some degree of noise to have a balanced life — think about it, a life in which nothing is random or serendipitous (i.e. all signal) doesn’t sound too fun. Eliminating the noise in meatspace can practically only go so far, but in cyberspace, where our kind now spends most of our time, the vast majority of products and services have been designed to give you nothing but signal. Twitter (and to a certain degree other social software, like the Facebook newsfeed) can theoretically be adjusted to be all signal, but the entropy of its design tends towards providing you with noise, be it noise of your choosing. Maybe Twitter is the cyberspace equivalent of one of those sleep machines that emits white noise to help you sleep at night.

The Inevitable Rise and Liberation of Music 2.0 [Abridged]

[Updated February 17, 2008. Comments #1-3 are in response to the original full-length post, which can be found here.]

I’ve been marinating on this post for a few weeks now, but haven’t gotten around to it because of some other events I’ll blog about soon. However after only being reminded that the Grammys were tonight by the fact that two people I know were looking to give away their tickets, I felt this was an appropriate night to dig in and get ‘er done.

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That the music industry is currently undergoing a profound transformative change is not news by any means. And, the retrospective analysis of the whys and the hows of this change is well-trod territory at this point. But, I don’t feel there is much clarity, let alone consensus, around what the future of the music business will look like, which I believe is a much more interesting conversation. My personal view is that it will look a lot like Saul Williams, in honor of whom this post is titled.

Saul Williams, Photo by: nsdesigns via Flickr Saul’s latest album, The Inevitable Rise and Liberation of Niggy Tardust, was produced by Trent Reznor of Nine Inch Nails and quietly released in October in a manner very similar to Radiohead’s In Rainbows — with consumers being able to choose between downloading an inferior version for free or paying to download a higher quality version (both DRM-free). Not many people noticed until a few weeks ago when Reznor, unlike Radiohead, posted the sales figures on the NIN blog (which for some unfathomable reason doesn’t have publicly visible archives — but, you can read the original text here) and said he found them “disheartening.” His subsequent interview on the subject with CNET provides a view into the mind of someone who looks at the Internet and digital distribution as basically new tools to propagate the legacy record industry business model.

If that had been all, I would have just chocked it up to music business as usual. But, then Saul jumped into the mix and pretty much blew my mind. In his own interview with CNET in response to Trent’s, Saul basically defined the archetype of my vision of the musical artist of the future, and in so doing illustrated where IMHO the music industry is headed. In contrast to Trent, Saul characterized himself as “extremely optimistic” based on the results of the online promotion. This polar opposite reaction is illustrative of a fundamental difference between the two artists that is best summed up in Saul’s own words:

I think Trent’s disappointment probably stems from being in the music business for over 20 years and remembering a time that was very different, when sales reflected something different, when there was no such thing as downloads. Trent is from another school. Even acts that prospered in the ’90s, you look at people like the Fugees or Lauren Hill selling 18 million copies. That sort of thing is unheard of today. But Trent comes from that world. So I think his disappointed stems from being heavily invested in the past. For modern times, for modern numbers we’re looking great, especially for being just two months into a project.

Williams goes on to talk about the importance to his livelihood of what the record industry has historically characterized as secondary revenue streams, like concert ticket and merchandise sales. The record industry has generally viewed these revenue streams mostly as promotion for their recorded music/packaged good business, in no small part because the artists and their management keep the bulk of the touring revenues and the labels keep the bulk of the record sales. However, touring has now become such a profit center for artists that Madonna now has an event company as a label. And just like how in the late 80’s and early 90’s artists started making songs with the music video in mind to take advantage of the emerging promotional power of MTV, you now have “ringtone rappers” overtly writing music to maximize the extremely profitable mobile revenue stream. By locking out emerging artists and ripping off established ones, the record industry has forced them to make money from sources other than recorded music, thus sowing the seeds of its own destruction. As a result, the new breed of artists now sees recorded music not as a primary revenue stream but as promotion for other revenue streams that go (more) directly into their own pockets.

At the end of the same interview with CNET, Williams also talks about how, even with Reznor’s backing, they couldn’t find a label that could wrap its head around what Williams was trying to do. It basically boiled down to the fact that none of the labels’ marketing departments had a promotional formula set-up for a black alternative artist. While defying the ability to be pigeonholed into a particular genre is to be admired artistically, it’s apparently not so desirable in the record industry. Because it’s a packaged goods business with high fixed costs (advances, studio time, sample clearances, mastering), relatively low variable costs (pressing and shipping CDs), and extremely high opportunity costs (promotion and shelf-space could be going to that Rihanna record that’s a lot more likely to sell), the model only works if you can aggregate a substantial audience around any given product. The marketing formulae the labels use are designed to predict and maximize the probability of aggregating the largest possible audience. And black alternative acts just don’t cross that bar.

But, the cost structure of digital distribution (mostly the even lower variable costs and the diminimus opportunity costs) lower that bar considerably. 154,449 people downloaded Niggy Tardust (of those, only 28,322 paid) in the first 3 months with no paid promotion, that’s almost 5x what Williams’ self-titled first album has done in nearly 4 years since its release. So it’s not the fact that no audience exists for a black alternative artist, it’s the fact that audience isn’t big enough to make money from CD sales. But it’s apparently plenty big for Williams to make a living from touring, merchandise, and other revenue streams. Last weekend I was over at Ian‘s and we were talking about the Yeasayer album, which I only recently discovered but Ian told me was a blog favorite of 2007. We agreed it was an album that probably wouldn’t have even been made 10 years ago (or if it was, would have resulted in the sacking of whatever young A&R exec snuck it through). But through the magic of the interwebs, these guys are now going on tour and selling out shows in LA and SF.

As we all know, the Internet has the power to unite people around a common interest, creating substantial audiences where little to none was thought to exist before. The result of this is that the tens of discrete genre-based marketing formulae Hollywood has relied on to program popular culture through mass media for the last 50 years are being atomized into a spectrum that represents the fluid reality of cultural tastes. For those of you familiar with calculus, it’s like the labels’ marketing departments are trying to do integrals by adding up the area of boxes under the curve and the web has just shown up with a graphing calculator.

Yes, Saul Williams isn’t even a blip on most consumers’ radars today, and artists like Trent Reznor, Ghostface Killah, and Robbie Williams, whose management has publicly objected to EMI’s stated aim of cutting the conspicuous excesses for which the record industry is infamous, are still dominating the charts. But at this point, there are more and more Saul Williamses and fewer and fewer Trent Reznors coming up everyday, and so the shift in the balance of power is only a matter of time. While Doug Morris is frantically trying to figure out how not to be the Shmoo (and Rio Caraeff is frantically trying to keep Doug Morris from sounding like a moron), the artists the labels wrote off as not viable in the legacy system are out there pioneering a new system in which they are. Back in the day, Overture decided to ignore small “tail” publishers because the margins sucked and Google decided to instead find a way to make the margins better, which resulted in AdSense and Google ultimately being able to come after Overture’s core “head” publisher business with margins that were that much higher. Christensen calls it the low-end disruption, and it’s an economic force of nature. Like Ian sez:

Environmental forces are easily ignored. Do so at your (or your company’s) peril.

So, what will the music industry of the future look like? I think it will be many more artists individually making less money on average than today, but collectively making a ton more for 2 reasons:

  1. The diversity of choice that will be available to consumers means more of them will find more things they enjoy more passionately and engage with more deeply resulting in them being willing to spend more money
  2. The decreasing importance of the recorded music revenue stream will spur innovation in exploitation and business models in a way that was impossible with the labels trying to protect their packaged goods cash cow

I firmly believe music will be a profitable business in the future, just not as profitable as it is now (but a hell of a lot more sustainable). If you love making music and you’re good at it and work hard, you’ll be able to make a good living — not an MTV Cribs living, but an upper middle-class living — and your music will touch more people who will identify with it in meaningful ways. If you love making music but don’t want to work as hard or aren’t that great, you’ll still be able to get some recognition and maybe even some money on the side of your day job. And most importantly, if you love listening to music, you’ll have an exponentially wider variety to choose from, a greater chance of finding artists you really like, more opportunities to engage with those artists in myriad new forms, and a real feeling of value from the time, energy, and money you spend. Sounds like a pretty bright future to me.

In case you couldn’t tell, this is an area that really fascinates me and one I will continue to explore on this blog. In the meantime, those interested in following my research in realtime can check out my ‘media 2.0’ del.icio.us stream.

Photo by: nsdesigns via Flickr

On Apple and Steven P. Jobs

[Originally posted on my 360 blog]

First of all, yes people, this blog is not (entirely) dead. I’ve been a bit busy with stuff over the last few months. In many ways, Flickr and Twitter have replaced this blog for cataloging my random acts of self-expression. And while there were a few subjects I felt worthy of real blog posts in that time, and I even started writing up a couple of them, I just haven’t had the time (or, more accurately, the attention span) to see any of them to completion. But today, I found myself writing a blog post sized comment on my friend Ian’s blog for the second time in a week. So, I figured why not leverage some of that energy over here. So, here goes…

Right now it seems that everyone is talking about Apple, and you can’t talk about Apple without talking about Steve Jobs. As a student of business and management, I find Apple since the return of Steve Jobs to be an extremely interesting case study which I’ve followed very closely. And for someone who’s never worked there, I think I’ve been able to glean some relatively deep insights into the company:

  • I’ve been an avid Apple customer for the last 17 years, giving me a solid grasp of the history of their consumer product efforts
  • The product I work on was originally Mac-only and is now competitive with features in OSX, so I know what it’s like to be an Apple ISV and competitor
  • I work with a number of hardcore Apple fan boys (and one ex-employee/fan boy) — no less than 5 members of our team waited in line for the iPhone — so I get to observe first-hand the impact of Apple-mania even though I’m no longer as personally passionate about the company as I once was
  • I’ve been able to attend the last 4 Stevenotes (2 MacWorlds, AppleTV special event, and this week’s iPod Touch special event) thanks to another Apple fan boy for whom I work, so I’ve experienced full power and glory of the Cult of Steve.

A little over 2 years ago, I sold the 200 shares of Apple stock I bought back when Jobs returned to be CEO. At $41/share, I made a tidy profit and an $18,000 mistake based on yesterday’s closing price (or, more depressingly, $21,672.35 based on the 52-week high). Why did I sell? Simple, I underestimated Steve Jobs.

I originally invested in Apple because I felt it was undervalued based on the assets that were in plain sight. Contrary to people who thought Apple was on its last legs and about to be steamrolled by the cheaper WinTel ecosystem, I believed strongly that the innovation and quality Steve Jobs brought to computers insured that Apple would lead the growing high-end segment of the home PC market and would be profitable doing so. When the stock started surging on the hype of the iPod, I sold because I felt the market was placing too much value on a non-core product line with unsustainable growth. Boy, was I wrong!

Continue reading “On Apple and Steven P. Jobs”