In December 2003, Harvard Business Review published an article by Fred F. Reichheld regarding customers as promoters. Mr. Reichheld's findings, based on two years of research, argued for a stronger correlation between growth by word of mouth over brand loyalty. Reichheld, F. (2003). “The one number you need to grow”, Harvard Business Review, 81 (Nov.-Dec.): 1-11

While some continue to argue the absolute quantitative methodology of measuring brand advocacy (net-promoter figure), word-of-mouth marketing continues to grow at a healthy double-digit rate.

"Word-of-Mouth (WoM) Marketing is the fastest-growing segment of the $254 billion marketing services sector of the media industry, which includes among others, branded entertainment, direct marketing and public relations. WoM marketing grew almost five times faster than the overall marketing services sector in 2006 and more than six times faster than the overall media industry and nominal GDP.

PQ Media defines Word-of-Mouth (WoM) marketing as an alternative marketing strategy supported by research and technology that encourages consumers to dialogue about products and services. And for the first time in the long history of WoM marketing, an industry has arisen by integrating strategy, technology and measurement from its earliest stages of development. Brand marketers are responding, and have begun to increase their WoM media budgets, moving from test phase to implementations that support their integrated marketing campaigns." More > 

The fundamental challenge traditional media channels and advertisers continue to face is the loss of trust between brand creator and consumer. Moreover, the Internet provides consumers a more transparent, trusted, and efficient marketplace for exchange of information between consumers about the merits of the product or service.

Whether you're a b2c or b2b organization, you should leverage social media technologies into your marketing activities and innovation process.

Click on image for full size.

Kameran Ahari

http://gotastrategy.typepad.com

I recently came across a great article about marketing myths in an economic downturn. The article underscores all the wrong ways organizations react towards marketing. Too often organizations view marketing as a discrete function and expense. In doing so, they have this notion marketing is something that can be turned off and on like a faucet. Remember marketing is mindset and a process. Pulling back on marketing is like pretending to be in business. Studies show, companies who adapt and continue their marketing during downturns outperform their competitors.

People continue to confuse marketing with sales. In doing so, they put the wrong metrics in trying to measure marketing ROI. Innovators need to put a little more marketing towards validating their premises before building their product. One of the primary reasons over 90% of products fail is nobody knows what problem is being solved. In other words, most products are chasing an invalid or incremental problem.

Marketing is everyone and everything. Marketing is integrated and inclusive of your employees, customers, and community. Marketing is not a single function, person, department, or activity. So, if you want to cut marketing, expect consequences to your customers, brand, and bottom line.

For more insight, I encourage you to read David Poulus' article "7 Myths About Marketing in Economic Downturns."

Kameran Ahari

http://gotastrategy.typepad.com

Innovators & Entrepreneurs

On this month's podcast of Innovators & Entrepreneurs, Kameran Ahari talks to Jim Fowler, CEO and Co-founder or Jigsaw. You can download the podcast of my entire interview with Jim Fowler or listen to it online (23 minutes).

Play / download podcast in MP3  Download rec_jigsaw_032008.MP3

Applying Open Business Models & Web 2.0 to Solve Real Business Challenges 
What would be the benefit of creating an online community-based market for exchanging business cards and business contacts? If you're in sales, marketing, or the CEO of a company, the answer is simple - a much higher ROI for your sales and marketing staff and initiatives.

If you have ever been around sales and marketing or run a company, you know the collective contacts in your Rolodex, PDA, or sales database is the lifeline of your business. But, what if you could have access to over 9+ million relevant business contacts on-demand with 100% accuracy?

For most people, it takes years, lots of effort, and some outgoing personality attributes to accumulate a few contacts. By some estimates, a salesperson can spend over 80 hours hunting down the appropriate contact. According to census reports, few people work for the same company or industry for very long. The average in some demographics is about two years. With shorter business cycles and higher employee turnover, maintaining current contacts is getting harder and more time consuming.

Most legacy companies in the contact list industry merely provide company names and addresses. Sure, you can join a number of professional social networking sites like LinkedIn. However, as a policy, most of these organizations don't share contact information. Most of these social networks are more interested in getting people to join them without offering tangible business benefits or incentives to the community.

What if the age-old problem of finding precise contacts on-demand could be solved in a collaborative community Web 2.0 framework? Well, that brings us to the hot start-up Jigsaw. The stats speak for themselves.

• Founded in 2003 (despite investment climate)
• Raised $18 million in three rounds thus far
• Subscription / community based business model
• Latest Web 2.0 business model and technology
• Free community based
• B2B solutions
• Over 430,000+ users and growing
• 9+ million current and accurate B2B contacts
• Takes only seconds to find the contact you want
• Very accurate

In a short, Jim Fowler and his team have democratized the Rolodex and blown away the notion that you spend years in an industry to accumulate contacts. Jigsaw is a classic example of an Internet brand in the making. Maybe LinkedIn or Facebook is your cup of tea for B2C. I want access to B2B contacts to do business more economically and efficiently for both parties. After this interview, Jigsaw just made my 2008 list of hot start-ups to watch.

To gain more insight into Jigsaw, you can download the podcast of my entire interview with Jim Fowler or listen to it online.

Play / download podcast for Apple iPod or QuickTime media player Download jigsaw032008.mov

Kameran Ahari
http://gotastrategy.typepad.com

Open-source Mergers & Acquisitions Up 50%

According to a recently published report by The 451 Group , 2007 was a record year for open-source M&As and valuations. According to the report, the number of open-source mergers and acquisitions jumped from 15 in 2005 to 30 in 2007. The XenSource, Zimbra, and MySQL valuations were off the chart. Citrix Systems paid XenSource 500 times annual sales.

Rather than republish the excellent 451 Group post, I compiled a more complete list with disclosed valuations. If the acquired company's URL does not exist, more than likely the acquisition was tactical. Some pundits argue most open-source acquisitions are tactical strategies. I Googled each deal to find a valuation.  A number of these deals are undisclosed.

Clearly some of these open-source organizations are a direct threat to the status quo licensed business model.  There is no question that some of these valuations reflect the supply and demand dynamics for more efficient and flexible open-source solutions. The average number of open-source applications sited in the enterprise jumped 26% in 2007.

Expect this pattern to hold as the software industry continues to consolidate and the adoption of open-source in the enterprise continues to rise. Look for new opportunities associated with implementation, integration, certification, testing, and support for these applications.

Related Sources / Stories

Open Source M&A Come of Age
http://www.the451group.com/report_view/report_view.php?entity_id=51385&dealbook=refer

OpenLogic Recaps 2007 Open Source
http://www.reuters.com/article/pressRelease/idUS126599+22-Jan-2008+MW20080122

Is The Open Source IPO a Pipe Dream?
http://blogs.zdnet.com/open-source/?p=1947

Here Come The Hot IPOs of '08
http://money.cnn.com/2008/01/10/markets/ipo/copeland_ipowatch.fortune/?postversion=2008011012

Open Source IPOs – Take Two
http://blogs.the451group.com/opensource/2008/01/23/open-source-ipos-take-two/ 

The Worth of Open Source? Open Question
http://www.businessweek.com/technology/content/jun2007/tc20070625_775467.htm

Kameran Ahari
http://www.gotastrategy.typepad.com

Importance of Aligning Your Corporate Strategy to Your Business Strategy.

I'd like to expand on Glyn Moody's comparative analysis of Google and Microsoft open-source projects.  While I do believe it's relevant to analyze how Google and Microsoft compete against each other and to contrast the merits of open versus closed software strategy, I see one fundamental difference when in comparing these two organizations. As I'll try to elaborate, I don't believe Google and Microsoft are competing in the free open-source software (FOSS) arena with the same objective. FOSS is in Google's DNA. Google's FOSS strategy is a means of rallying a community of the best programmers, accelerate innovation, and tear down walled gardens to redefine software in the context of the new Internet.  Microsoft's FOSS activities are part of a classical defensive and tactical strategy to protect its eroding corporate strategy (software industry).  As I draw a distinction between corporate versus business strategy, you'll understand were I am heading.

These two technology giants remind me of the historical relationship telecom service providers (a/k/a carriers) have had with their network infrastructure suppliers (tech manufacturers).  One is a supplier and the other is a service provider. As long as I can remember, carriers have wanted to dictate innovation and demand source code from their vendors, but they want nothing to do with manufacturing.  When I think of Microsoft, I think of a software publisher (producer) and Google as a value added service provider.

Throughout 2007, I highlighted the momentum behind open innovation.  Moreover, the extent to which free open-source software (FOSS) is being used in giant Internet brands like Google.
 

If you have any doubt about the momentum behind free open-source software (FOSS) and the pressure facing the software licensing business model, I would encourage you to read Glyn Moody's post in Redmondmag.com.  Google is quietly assembling an army of the brightest FOSS innovators and coders to work on open-source projects.  As Glyn points out, Microsoft has spent years getting a handle around the implications of Linux to Windows.  Not a lot else.  However, Google's FOSS projects include GNU/Linux, Apache, Android, Google Gears, and events like Summer of Code to identify the best talent.  Clearly, Google understands that FOSS initiatives have to start with identifying and rallying programmers all over the world.  You cannot just announce that you're going to change your business strategy from a licensed model to an open model.  You have to begin coalescing a community of programmers and other contributors behind your open-source initiative.

Google's business strategy to embrace open-source enables it to achieve a competitive advantage that is aligned with its corporate strategy.  What's the difference between a corporate strategy and business strategy?  Corporate strategy reflects various investment criterion and market opportunities that ultimately rationalize why you have chosen what industry to compete in. Deciding to enter the tech or software industry does not determine your business model.  Fundamentally, you have to decide if you're going to be a producer or a service based organization.  A business strategy, by contrast, reflects those decisions you make in determining how to compete and capture a differentiating source of competitive advantage.
 

Google's business and corporate strategy are aligned.  Unfortunately, Microsoft's internal conflict stems from a misalignment of its corporate and business strategy.  Microsoft is still clinging to its original software publishing industry (selling software licenses).  Google does not have to struggle with the decision.  That decision was made on day one when the company was formed.  However, Microsoft continues to struggle with this decision.

I agree with Google's CEO Eric Schmidt.  In my opinion, Google's FOSS strategy is far more strategic than going after Windows productivity applications and market (Office, etc.).  Google's open-source projects and strategy is to accelerate innovation and strengthen brand loyalty through transformational changes. Bringing more transparency to software in the context of the new Internet (Web 2.0 and SaaS) and every computing devices we use will create value.  If you're currently a software company and thinking about joining the open-source movement, just remember that the FOSS movement has more to do with adoption of a new corporate strategy and business model than just making your source code available.

Kameran Ahari

http://gotastrategy.typepad.com

Open-source deals keep getting bigger.  Detect a trend?  I've been harping about open innovation and continued trend toward commercial open-source software.  Sun Microsystems today announced the acquisition of open-source database company MySQL for $1 billion.

The acquisition also represents a bid-up price for an open source company. The $1 billion Sun will pay almost equals the sum of the open source acquisitions that have preceded it. Red Hat paid $326 million for JBoss; Citrix (NSDQ: CTXS) paid $500 million for XenSource; Yahoo (NSDQ: YHOO) paid $350 million for Zimbra; Oracle (NSDQ: ORCL) paid an undisclosed amount for Sleepycat.

MySQL represents a small portion of the world's $15 billion in database revenue, perhaps $200 million a year, Yuhanna said in an interview. But it represents the database most frequently used for new Web applications, particularly those for the social engineering, active user-input types of sites, such as Facebook. Read >

Look for my next post titled "open-source and your corporate strategy."

Kameran Ahari

http://gotastrategy.typepad.com

Last year, I was one of the first to post a blog about the controversial Facebook article, which appeared in 02138. Tonight you can watch the CEO of Facebook defend some of his other controversial decisions.  Mark Zuckerberg's interview with CBS correspondent Lesley Stahl will be broadcast on 60 Minutes this Sunday, Jan. 13, at 7 pm. ET/PT.  I am sure you're as curious as I am about the ConnectU lawsuit.  If you watch the interview live or online take this poll and let me know what you read into his body language.  Based on the short video promo of the upcoming interview, I think we are about to see a very revealing side of this so called social networking boy wonder.

Kameran Ahari

http://gotastrategy.typepad.com

Another Open Business Model Moves Forward
 

Just before the holidays, I signed off by saying keep your eyes on Joost and Vuze.  Well it looks like NEA and several other notable VCs are bullish about Vuze, which I covered last year.  NEA lead series C round for Vuze.  On December 14, I said this open IPTV start-up would definitely be on my list of innovative start-ups to watch for 2008. Excerpt from my April 16, 2007 post about Vuze: 

Vuze - Take Joost, YouTube, and the popular P2P BitTorrent application, and you get Vuze.  My dear friend Christian Leybold at BV Capital was the first to clue me into Vuze by Azureus. Vuze provides Hi-Def DVD quality video content produced by both community and traditional media content providers. Pretty cool. Investors include Redpoint Ventures, BV Capital, and Greycroft Partners.

As I stated earlier, the writer's strike should only bolster viewership for Vuze and other innovative Hi-Def  IPTV start-ups.  Vuze claims over 15 million Vuze client downloads and the community is growing by 500,000 people a week.  I have no doubt these innovative start-ups will open the traditionally closed content and network providers.

Kameran Ahari

http://gotastrategy.typepad.com

Greetings!

 
I am in the process of researching Web 2.0 companies for a series of Q1 2008 reports.  As you know, I made some notable predictions for 2007.  I still anticipate a big pop in the IPTV / HD media streaming over the Internet space.  The writer's strike in Hollywood will benefit start-ups like Joost and Vuze. I am confident about the merits of this segment.  Another legacy walled garden industry.

I am particularly interested in identifying innovative open applications and SaaS models.  I predicted Zimbra with a 100% probability.  The criteria I established for picking these companies seem to hold true.  I am also interested in tagging a subset of Web 2.0 companies that are based on commercial business models, open source, AJAX, and other RIA technologies. 

A number of Web 2.0 start-ups are well beyond incubation and should be candidates for exit.  I have no doubt that Zimbra, MySQL, and now Google will pave the way for other commercial open models.  Despite the market conditions, MySQL is a strong IPO or M&A candidate.  If you are interested in getting a blog alert make sure to sign up using Google FeedBurner email or RSS feed. 

In the meantime, you might be interested in the following Web 2.0 directories I found in the blogosphere. Most of these directories are simply link lists. For your convenience, I have created a Web 2.0 Sites sidebar on my blog.


WEB 2.0 DIRECTORIES

Makeuseof.com:  The Other Lists ? 10 Other Web 2.0 Application Directories

Web 2.0 Directory from eConsultant:  1200+ Web 2.0 sites

Go2WEB20.net

From Istanbul to Sand Hill Road:  Web 2.0 Companies

SEOmoz.org:  Web 2.0 2007 Awards

Don't forget to sign up for my Favorite List of 2008 Start-ups to Watch.  Who do you think is going to be the next hot start-up?

Kameran Ahari

http://gotastrategy.typepad.com

Verizon Joins The Open Network Movement

According to The Wall Street Journal (11-28-07 WSJ), "Verizon to open cell network to others' phone."  Suddenly Verizon has decided open networks are not so bad.

FIRST THINGS FIRST

Let's be clear.  Verizon did not say that it is embracing the open source movement nor liberating itself from closed proprietary networks.  According to The Wall Street Journal article , Verizon is simply moving away from subsidizing the cost of the phone.  Now consumers can buy their handset anywhere, so as long at it works with Verizon's network.   Moreover, the suggestion is that handset makers Nokia and Motorola are free to engage consumers more freely.  This is an abrupt change in position for Verizon.  Is this announcement in response to pricing pressure?  This announcement sounds more like a supplier channel strategy shift.

BACKGROUND

Wireless incumbents like Verizon and AT&T tightly couple cellphone devices, features, and applications to closed proprietary networks.  This makes it costly for customers to switch between the different providers.  So why is Verizon making this announcement now?

THE SIMPLE ANSWER

So why now?  Competition.  The simple answer is companies like Google are willing and capable of doing whatever it takes to extend their business model across any network. If you're Verizon, you can keep watering the walled garden strategy and hope for the best.  Alternatively, you can try to convince Google that you are serious about changing your business model to some kind of a revenue sharing model. Duh! I am surprised they did not adopt a first mover advantage. Perhaps this is no more than a concession or gesture.  I am not the only skeptic:

"The announcement is a marked departure from Verizon Wireless' previous stance on open-network policies that Google and the Federal Communications Commission are promoting for a new spectrum auction in January. For months, Verizon has been protesting, arguing, and in any and all ways kicking and screaming about the downsides of open-network business models and all the problems it will bring to the industry. Read more >

THE STRATEGIC ANSWER

So, why is Verizon wireless opening up its network to other phones?  The real answer is competition from open innovation.  Specifically, competition from innovative Internet players like Google and Apple who understand the basic principles for creating and capturing value through transparency (a/k/a openness).  What are some of these value creation principles in the networked world?  Fundamentally, Internet players understand that when you empower consumers with more open choices and accessibility, you create value. 

When you announce a new and open platform for mobile devices, as Google did, you start decoupling the device from the network provider.  In doing so, you give customers the ability to choose and carryover any device they want independent of the service.  You also create an environment and framework for new and innovative web-based applications.  Keeping the network provider, network, devices, and applications transparent is a good thing.  Flexibility is another form of value creation.

DEATH OF WALLED GARDENS

Walled gardens are not sustainable in a networked world. In fact, walled gardens provide a rich environment for Internet companies to capture value. Internet companies thrive on harnessing the emotional friction and economic inefficiencies walled garden models create.  The popularity of Wi-Fi and cellphones is the best evidence that mobility creates value. However, open mobile devices will create even more value. Apple and Google have a clear handle on this strategy.

Indeed, Google and Apple are reducing the barrier to entry by opening up the mobile device.  I call this Skype-ifying of cellular networks.  Google, Skype, and Apple have laid the groundwork.  Skype recently signed a deal with wireless carrier 3. In 2008, we should see more transparent cellular networks, both at the device and application level.  This is going to extend the footprint for Web 2.0 applications and SaaS based services.  The wireless industry is finally heading towards the same level of transparency we currently experience with PCs.

WHAT CONSUMERS WANT

Consumers ultimately want to see a unified broadband wireless network that is agnostic and transparent at the device level and application layer.  Consumers want to access their e-mail, social networking sites, communities, and favorite applications over any wireless device.   Acting as a gatekeeper to your community and places is not a value added service.

Let there be no doubt, Verizon's recent announcement to open up their network to other phones is a tactical defensive move.  Heed the warning walled gardens, it's time to democratize your network and move forward with open innovation and business models.

Kameran Ahari

http://gotastrategy.typepad.com


RELATED LINKS

Why Verizon Wireless Opened Its Network

Verizon To Open Network To More Phones

Google, Bidding For Phone Ads, Lures Partners

Will There Be a Gaggle of Google Android Phones