R21

BusinessWeek asked some CEOs what they thought of Obama's performance so far and here's the blurb they quoted for me:

Andy Grove wrote an interesting piece on how the computer industry became more horizontal with the advent of the PC and it may be time for the auto industry to do something similar.

The car industry today is as vertical as the computer industry was before the PC. However, the simplicity of the electric car combined with the standardization of certain components may cause the automobile industry to shift to a horizontal structure. The Internet is already emerging as a key marketing medium for automobiles and is easily adaptable to a horizontal structure.

Richard A. Epstein on "Why the Obama Stimulus Plan Must Fail" 

Ex nihil nihilo: out of nothing, nothing comes. It is as though corporations could work their way to greater wealth by making stock dividends to their shareholders. One might as well increase the size of a cherry pie by increasing the number of slices.

This from TechCrunch on April 1, 2009, Silicon Graphics Declares Bankruptcy and Sells Itself For $25 Million:

SGI's high-performance, highly-proprietary, computing systems fell victim to the spread of cheap Linux boxes hooked up together with massive redundancies.

This from Red Herring, September, 1995 in an Open Letter to Ed McCracken, CEO of Silicon Graphics:

In 1992 you bought MIPS, the microprocessor designer and manufacturer, because you were its last major customer and needed to guarantee that SGI could continue to use MIPS chips. Now you rely completely on that technology. In the meantime, Intel and Motorola/IBM/Apple have each spent a billion dollars on their Pentiums and PowerPCs--Intel will spend $3.5 billion in capital investments and $1.3 billion on research and development for 1995 alone! And this investment will only grow. In 1994, Intel-based systems doubled in price/performance. With volumes in the tens-of-thousands, not in the tens-of-millions, how can SGI compete? And stiff competition is just around the corner: a Windows NT system with multiple P6s on the motherboard will compete with your high-end machines at a fraction of the cost.

This seemed obvious in retrospect, but it wasn't obvious at the time, and I think we were the first magazine to really call attention to this trend. I'm actually quite proud of this article and remember being quite nervous about it. After all, who were we to openly challenge the brilliant minds at one of the Valley's hottest companies? I was 25 at the time and had zero direct experience in the industry that would qualify me to make a sound judgment on SGI's strategy.

But we were confident in one thing: we actually talked, and listened, to some of SGI's best customers (even after almost 15 years I won't reveal the sources!) and what they were saying made sense. Their customers didn't think SGI was listening, so the main goal of our letter was to urge them to do just that:

Don't Alienate Your Customers
Regardless of the strategy you choose (or may have already chosen), we urge you to work closely with your customer base and announce your long-term plans--or the grumbling masses of graphics professionals who depend on SGI will mutiny, and turn to Intel and Microsoft for leadership. We realize that abandoning your MIPS-based systems will threaten short-term sales, but, right now, the greatest thing SGI has going for it is its momentum. Don't spoil that by alienating your loyal customers.

SGI's response to our article was telling. Rather than following our advice, they invited us to their offices, loaded the room with some of the smartest people I'd ever met, and tried to convince us why we were wrong. They had convinced themselves that they COULD in fact compete with the wintel price/performance trend and I guess they thought that if they could convince us that their strategy was sound, we would in turn convince their customers through our writing. But that fundementally misunderstood our role at Red Herring. SGI customers influenced US more than we influenced them -- so SGI didn't get how the patterns of influence worked. You don't change customers minds through PR, you change their minds by listening, engaging, responding, and adjusting.

I think the "earned media" meme is a useful one -- if brands want "coverage" in a world of professional AND consumer-generated media, they will have to earn it, not just pay for it. In the past, earning it was managed through PR -- the pros wrote about you because you deserved it (and you did a good job of convincing them of that fact). Today we realize that great products and great customer service can earn you accolades from the hordes of bloggers, twitters, and facbookers (and the inverse is also true).

Here's Pete Blackshaw...

This is important to internalize because maximizing earned media requires a much more fundamental shift than just "embracing social media." Setting up shop on Facebook is the easy part. Developing the brand business processes that increase odds of advocacy or favorable earned media is quite a different thing, but it's essential. If, in fact, the manner in which employees treat customers does more to drive online love (or venom) than your best advertising campaign, we have a fundamentally bigger challenge (and opportunity) on our hands.

who refers to Fred Wilson...

Earned media is media you don't buy but earn the hard way. PR is an example of earned media. Word of mouth is another. Earned media has been around forever. But it has now gotten a lot easier, thanks to the Internet and social media, to earn media for your brand, product, or self.

who refers to Jerry Solomon:

The first step is to stop the monologue and begin a dialogue. Start listening and responding. Marketers understand TV, radio and print. They remain effective but no longer as dominant. No need to abandon them. However, brands need to become equally adept at mastering the language of social networking, blogging and online content. This begins with investment in new business models. Accept more will fail than succeed. Unfortunately the only method of determining the ones that work is by putting the resources and will behind them. The brands that invest in unlocking the code will develop genuine relationships with their customers, as well they should. They earned it.

I was watching Mutual of Omaha's Wild Kingdom on Animal Planet (takes me back...) while blogging and twittering - and finishing up World of Goo - and a thought occurred: is Twitter a gharial?

For those few readers who may not know, a gharial is a highly specialized crocodile that has evolved into a fishing machine. The gharial survived over the millennia by being heavily optimized for eating small fish. With a long, narrow snout "the reduced weight and water resistance of their lighter skull and very narrow jaw gives gharials the ability to catch rapidly moving fish, using a side-to-side snapping motion." The trade-off is that "gharials have sacrificed the great mechanical strength of the robust skull and jaw that most crocodiles and alligators have, and in consequence cannot prey on large creatures...." They've traded specialization for adaptability.

However, while they were once perfectly adapted to their environment, with changing ecosystems through the ages the gharial are now on the critically endangered list and only survive in the wild in a few areas in India. Wild Kingdom chronicled a heart-breaking episode where an early monsoon wiped out one of the few remaining nesting grounds for gharials, washing away dozens of eggs.

Twitter is having its moment. They are a gharial and the internet is presenting it with an bounty of small fish, many of whom were tired of competing with the bigger blog sharks and searched for easier waters. But Twitter is successful in great part by the discipline of its creators to focus on the simplicity of doing what it does best, while others have undulated and mutated, copied and careened. Twitter is highly specialized.

Yet the environment is changing, and the fish are growing. We are now seeing macro-micro-bloggers, from Britney Spears to Al Gore, and organizations small and large are wading into the waters as well. Meanwhile, other predatory species are waddling in from the riverbank. So the question is: is Twitter adaptable?

We've seen this before. The social media space already has a long line of hit services that grabbed the limelight and then gave way to new golden children: LiveJournal, Blogger, TypePad, WordPress, Friendster, MySpace, and some would argue that Twitter is taking the attention from the current darling, Facebook. And already some luminaries are suggesting that Twitter itself is peaking. All of these services continue on successfully, of course, but the conditions that brought them to prominence changed almost as rapidly as they materialized, and these services will have to adapt along with the environment.

Facebook has made notable, aggressive moves to evolve and, despite a fair amount of criticism for a number of its moves, it clearly possesses the strength and adaptability to make changes, learn from mistakes, and adjust. Twitter has only made the slightest adjustments to its product mix in the last few years - an approach that has served it well... so far. But we know that environments change and we will learn just how adaptable Twitter is, or even wants to be, in the coming months and quarters. Do they meddle with the specialization that has brought them this far? Or do they stay the course and risk others adapting better than they to the web's ever changing ecology?

I think Twitter is a phenomenal service and I admire the founders and management team tremendously. It will be fascinating to see how they approach this dilemma.
 

From Ad Age:

Brands aren't simply brands anymore. They are the center of a maelstrom of social and political dialogue made possible by digital media, said Unilever Chief Marketing Officer Simon Clift, who warned that marketers who do not recognize that -- and adapt their marketing -- are in grave peril.

"No matter how big your advertising spending, small groups of consumers on a tiny budget might hijack the conversation," he said. "So this internet thing is much bigger and more interesting than just finding successors to TV advertising."

Conversations happen. The world where brands can shape their identity merely through one-to-many advertising alone is over. Opinions and ideas on virtually everything (politics, sports, technology) are being shaped, formed, and solidified through social media, and brands are no exception to this.

Clift's 5 new rules for marketing (details at Ad Age):

1. Listening to consumers is more important than talking at them.
2. You can't hide the corporation behind the brand anymore -- or even fully separate the two.
3. PR is a primary concern for every CMO and brand manager.
4. Cause marketing isn't about philanthropy, it's about "enlightened self-interest."
5. Social media is not a strategy. You need to understand it, and you'll need to deploy it as a tactic. But remember that the social graph just makes it even more important that you have a good product.

I thought Arianna Huffington put this very well:

The great upheaval the news industry is going through is the result of a perfect storm of transformative technology, the advent of Craigslist, generational shifts in the way people find and consume news, and the dire impact the economic crisis has had on advertising. And there is no question that, as the industry moves forward and we figure out the new rules of the road, there will be -- and needs to be -- a great deal of experimentation with new revenue models.

But what won't work -- what can't work -- is to act like the last 15 years never happened, that we are still operating in the old content economy as opposed to the new link economy, and that the survival of the industry will be found by "protecting" content behind walled gardens.

Andrew Anker has more coverage of the Great Upheaval at Quid.Pro. I like Clay Shirky's description of an industry unwilling to confront reality:

When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based, while employees who have the temerity to suggest that what seems to be happening is in fact happening are herded into Innovation Departments, where they can be ignored en masse.

So how do you move forward without obsessing on the past? Well, ironically, learning from history may help.

L. Gordon Crovitz writes in WSJ about how Bernard Kilgore transformed The Wall Street Journal when it faced a disruption of it's business model from technology as stock information, which had been the paper's core differentiator, became plentiful via radio and other sources:

The Journal had to change. Technology increasingly meant readers would know the basic facts of news as it happened. He announced, "It doesn't have to have happened yesterday to be news," and said that people were more interested in what would happen tomorrow. He crafted the front page "What's News -- " column to summarize what had happened, but focused on explaining what the news meant.

You often hear professional media dismiss blogs and other new media because, it is claimed, the latter can only do opinion, and not "real" news. First, this is simply untrue, as attested to by the emergence if hyperlocal media. But second, this attitude may have compelled the media industry to focus too much on a misperceived comparative advantage -- news -- when they could have been innovating more on the analysis side of things.

As Crovitz points out:

"Kilgore's first critical finding," Mr. Tofel wrote, was "that readers seek insight into tomorrow even more than an account of yesterday." This "may only now be getting through to many editors and publishers." Indeed, at a time when print readership is declining, The Economist, with its weekly focus on interpretation, is gaining circulation. The Journal continues to focus on what readers need, growing the number of individuals paying for the newspaper and the Web site.

Professional media have tended to view the world as a cascade, starting with their news, and trickling down to the blogs that, sometimes parasitically, feed off of them. One wonders whether the future will looks inverted from this past -- with media companies focusing on their brand advantage, and the trust that many of them still earn, by aggregating and analyzing the news that is now becoming so plentiful across the Internet.

The evidence would appear to suggest not:

The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.

The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."

Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.

James Freeman gets it:

If our economic system is to thrive, venture capital is exactly the place where we have to encourage risk. In pursuit of innovations that will enrich themselves and the world, employees at start-ups accept low pay and reputational risk, while well-heeled investors accept the possibility of losing every nickel of their investment.

Attempts to limit risk pose a systemic threat to American technology. Venture capitalists, mainly veterans of the tech industry, are deeply involved in the companies they back, often helping to recruit each of the key employees at a start-up. This hands-on feature of venture investing means that innovative companies and their backers tend to cluster in areas like Silicon Valley. If the VCs move offshore, that's probably where the next generation of companies will be born.

I'm hoping Geithner's comment is born of ignorance, not calculation, for if it's the latter then we're in trouble.

UPDATE: comScore's Gian Fulgoni has some VC quotes on this.