Looking forward to next year – in true “This is Spinal Tap” fashion – we will go to 11, so forget the top ten list. this is a top 11 list for 2010.
The majority of these ideas are so simple (in retrospect) they make you want to slap your head for not thinking of them.
11) NETFLIX $600M Spend. Netflix spent $600,000,000 (six hundred million dollars) to three different movie houses to get earlier distribution rights to the most popular movies. It’s actually a billion but 600 million in 2010. When I first read this I wondered where that number came from, but as I read more in the article in the paper, that is how much they spent on US postage last year and since over 70% of their business is streaming videos, this is an incredibly smart move. Almost a “duh” but not quite.
10) MICROSOFT KINECT. Hard as it is to believe they included the word “kin” in this piece of technology after the cartoonishly spectacular failure of the “Kin” device, the seemingly dead technology behemoth cranked out a surprising rethink of the video game controller. Having already evolved from the slightly-too-phallic controllers of yesteryear to the remote control-like device of the Wii game system, Microsoft actually figured out how to eliminate the controller through the use of cameras that track body movement. Talking about it on National Public Radio recently, I couldn’t agree more that this has way more potential beyond the world of gaming and hopefully Microsoft stays ahead of that. The other issue, as the other monster industry in the universe grabs ahold of this, porn, is whether Microsoft really wants to turn its back on such a giant market.
9) GYRO-COPTER. I really couldn’t care less about remote control toys. That was true until I was introduced to the $30 (on amazon) helicopter from Cobra Toys. WOW. This toy has so many things to recommend it I should probably do a blog entirely about them. The real breakthrough is the fact that it has a gyroscope in it and it makes it really easy to fly it with incredible precision. The fact that all of the parts are replaceable is a big plus, as is the fact that you can charge the copter with a USB cable that plugs into any USB source (see #1 below for the real forehead thumper below). This is the greatest present of the year for just about anyone. It’s incredible.
8) iPAD. Not a whole lot to say hear. This device has changed the world, with 7 million units sold in the first year and another 32 million projected to sell in 2011, this device is paving the way to the future of computing. My son is using his right next to me as a peck away at my IBM ThinkPad. The big rethink here is really just taking the iPhone and making it bigger. That’s really all it is, but it makes a HUGE difference in the experience. The great irony is that Microsoft actually launched this technology before anyone else with the Surface product, the problem is, they never took action to slim it down to iPhone or iPad size until years after Apple had already done just that. Apple really didn’t innovate, they really just copied what Microsoft did, which is funny given that Windows was really a copy of the Mac. Maybe Apple will get the last laugh. Their shareholders may have already . . .
7) KODAK MOMENT. For a company that was almost as dead as Polaroid, you have to tip your hat to Kodak for coming back so well. There’s a chapter about them in my new book, Surviving A Business Earthquake (only through iBook on Apple), but the fundamental rethink they did was in redefining the Kodak Moment. It used to be the moment at which you took the picture, because way back when film and printing was so expensive, we were a lot more judicious about when we would take a picture. Now, we will take a picture of anything, anywhere, so the “moment” is the decision to share a photo with someone else – that’s what led Kodak down the path of printers and frames. Smaller, but much more profitable than before, bravo Kodak!
6) SOLVEMEDIA. The captcha is something not everyone knows about. But they do. When you see the quasi-hallucinogenic letters and numbers that you have to enter for security reasons, that’s a Captcha. So when Solve Media figured out that you could put the name of an advertiser in the Captcha space so you have to type the name of the advertiser . . .wow. . . how obvious yet brilliant is that?!
5) DOXO. doxo is the best idea in online bill-pay ever. That’s about all you really need to know, but that’s who they are. You may not think your online bill pay solution is broken, but once you understand doxo, you will really wonder why this didn’t happen sooner. It’s free, it’s clear and simple, there are no ads, and they store all of your billing data. Another great candidate for a “duh” rethinking award.
4) COINSTAR. Talk about a turnaround. Coinstar was already a solid company, being really the only simple option to cash in those coins so many of us have in a jar or bowl someplace. Then they bought Redbox, the $1 per rental movie company that has put pressure on Netflix. Then they (finally) figured out how to eliminate the charge of converting coins to cash. Eliminate isn’t really the right word, but they figured out how to shift it away from the person cashing in the coins – to a merchant where the person can spend their money. And that is brilliant. More companies need a rethink like that.
3) AUTOMATED SERVICES 3GTV. I blogged about this earlier in the year, but these folks have figured out how to make advertising tailored to the person and region where they are – like a video ad for Kraft Macaroni & Cheese in the grocery store right above the actual product. Outstanding intersection of technology and advertising, and as we allow our location to be broadcast from our mobile devices, this will change the shape of advertising forever.
2) SWAYABLE. This might deserve to be #1 because of the “duh” factor, and if I get pressure from them, I could be convinced to put them in the #1 spot. Most people, at one time or another, have been to the site hot-or-not dot com and found it oddly addictive. Swayable is similarly addictive, but as a business model it’s much, much smarter as I blogged about here because of the data they collect for manufacturers. Brilliant. Duh.
1) FASTMAC. Are you kidding me?! The USB port of the laptop that we use for so many things, the company FastMac realized that “what” we are doing a lot of the time is simply charging our devices, whether it’s an iPad or a Cobra Toys copter, or something else, so the folks at FastMac had the “duh” idea of the year to offer an outlet with a USB plug. Why didn’t we think of that?! Ugh.
Winner – FastMac.
I don’t think many people are going to miss 2010 (except maybe the GroupOn founders and funders who turned away $6Billion from Google), so on to 11 we go, and what better way to usher in the year than with a top 11 list.
Although there was an article in the paper suggesting that Google’s offer of $6 billion for Groupon wasn’t totally nuts given that they are already at a run rate of over $1 billion, which is really only a bit over 4x revenue. True, but I predict that it will go down as one of the most spectacularly poor decisions on the part of Groupon for passing on that deal. There are no barriers to entry into the space and there are a lot of known flaws in the model, and a lot of fast followers like Tippr that could easily do to Groupon what Facebook did to Myspace (Myspace stumbled and Facebook replaced them and that was that).
So who is next?
Well there are lots of interesting companies for Google to buy, but as they look to grow their enterprise business which is already a very respectable 10% of revenues, expanding their offerings to further differentiate and offering more to customers seems like a smart play. So who has a cloud based solution that already has strong revenue in space that Google has no presence, but that company has stumbled a bit of late?
Before I throw out the name, here’s a quote from a December 11, 2010 Standard & Poor’s report:
“Worldwide revenues associated with applications deliverable under a software-as-a-service model are expected to increase to $20.6 billion by 2014 from an estimated $8.1 billion in 2009, according to a June 2010 report by IDC, a market research firm. This represents a compound annual growth rate of 20.4% from 2009 to 2014. Customer relationship management is one segment that in our view, is well-suited for on-demand delivery. Other areas include procurement, travel and expense management, certain areas of human capital management, and enterprise resource planning.”
One company that comes to mind is salesforce.com (ticker CRM). Great business to get into, but the issue with trying to buy salesforce is that their stock is about $140 a share right now, which is over 250 higher than earnings per share which is in the stratosphere with a market cap of over $18 billion. Wrong timing for bringing in a small amount of profit for that much money.
So who else? The report above also mentioned expense management. Ever heard of Concur Technologies (ticker CNQR)? They are a great story. They were an almost dead dot com company that sold license software to enterprise, they have very successfully migrated to being a software-as-a-service company. If I am not mistaken the stock got well under a dollar per share at the low and now it has been back over $50 per share. But at the moment they are also trading with a pretty high price/earnings per share ratio of about 138, but last month a report on Concur from Merrill Lynch was called “Outlook good, but not enough” and just last week Standard & Poors lowered their recommendation on Concur from Hold to Sell. The message in the reports is consistently that the news is good, but not good enough to support a P/E ratio of 138, which means that the current market cap of Concur ($2.8 billion) is probably around what it would cost Google (or someone else) to buy them.
Google has the money, it expands their offerings overnight. Expense management is much less complicated than something like customer relationship management to sell or deliver. Why wouldn’t they buy them to expand their enterprise business and offer more to customers?
Causality is a funny thing in that we make so many assumptions about what causes outcomes, when the actual cause is discovered, it’s often stunning. Anyone who read Freakonomics knows that. Of course the most stunning example was the actual cause of the incredible drop in crime in the US in the 1980s had nothing to do with law enforcement efforts and everything to do with the Roe Vs Wade Supreme court decision allowing abortions. It was a lot of the unwanted children that were growing up to become criminals, so when abortion allowed women to make the choice to not have the children they didn’t want, that wiped out an entire population of criminals. The example of the governor who learned that kids who had more books in their houses did better in school and then spent money to give five books to every household that had kids was the one that makes you slap your forehead. Of course the books themselves were not the “cause” of the kids doing better in school, that was simple correlation, the cause, of course was better parenting and more books was one aspect of the better parenting.
I actually used that book as one of several examples of why there was a need for a book that got specifically at causality in business and thus was born Rethink.
So when I read this article by William Neuman the other day about an organization called Save the Children, at first I was a bit miffed. At one point they had been pushing for a tax on sweetened drinks as a way to curb the obesity/diabetes epidemic in this country and then after very large donations from Pepsi and Coke they miraculously backed off on the push for the soda tax. It seemed like a really obvious payoff from the two companies that would probably be hurt the most by such a tax. Were they totally abandoning their mission? Then I started thinking about causality and put myself in their shoes. They need to raise money to have a bigger impact. Coke and Pepsi gave them big checks and that helps a lot. Are drinks like soda good for kids? Nope. Are they a likely cause of why so many kids are overweight in this country. Probably. Are they the only cause of kids being overweight?
So if it’s not the only cause of these health issues, is it a smart business decision to back off when it comes to pushing for the soda tax when there’s so much upside in terms of raising money for the other aspects of the efforts of Save the Children?
There is a long list of the causes of obesity (including parenting a la the above reference), so as a business decision I think it makes total sense to give up the fight for a soda tax to get more money from Coke and Pepsi so that they can focus their energies on the other causes of this problem.
Get specific about the outcome, isolate the causes of the outcome, don’t make any assumptions about who your enemies and allies are until you do that. Coke and Pepsi looked like enemies of Save the Children, but the opposite is true with some clear thinking.
When you think about who might topple a software giant like a Microsoft or a Google, you might be inclined to think of Goliaths like, well Google and Microsoft. The same is true of any industry, you probably think of a company of similar size or larger as being the type of company that would win a battle, or a war.
Actual battles and wars end up being an interesting analogy. If you think if big battles like World War I and World War II, that’s exactly what happened – giants fighting giants from big, knowable centralized points of command. But there are some other wars that have been fought where the little guy won (or hasn’t lost in the case of one ongoing war) and there’s a common element in all of them. No centralized physical location to “take out” to win. When everything is dispersed and there isn’t any one thing to take out, it’s hard to really know how big or how small opposing force is, and they can be substantially more agile. In this situation, an organization of any size can pose a major threat to an enormous organization. The war on terror is an ongoing war that fits this profile – it’s virtually impossible to know how big or small the opposition is, or where they are at any given time, so it’s very hard to be ready for an attack from them. Viet Nam was a tough one for the US to really stand a chance in because it was in unfamiliar territory and there was no central location to take out to declare victory. One could even make the same argument (at a high level) for why the British lost the American revolution.
Rovio is a tiny software company out of Finland that makes a game called Angry Birds. Angry Birds is one of those products/games that sounds so strange and so not-fun, it is a little amazing to me that it ever even became a game, but as someone who has lost many hours of my life to that game, I have to say, it’s a lot of fun and incredibly addictive. As an aside, the TV show Spongebob Square Pants falls into the same category – I would have loved to have been in the room when that show got pitched to see what caused the network to green light that nutty idea. It is a global phenomenon, and the only thing that puzzles me is that the company hasn’t made more money from it, though I expect that will change soon. But it’s a tiny little company of fewer than 20 people based in Helsinki and they made they #1 most downloaded iPhone application last year. Number one in the world. Not Microsoft, not Google, not Oracle or any other software giant you can name. Little tiny Rovio.
On to CCP.
Staying in cold Northern European countries, let’s move over to Iceland, a tiny country of about 300,000 people. How likely are they to have a company that creates some of the most popular software in the world? Well, that’s CCP. Now they are bigger than Rovio, but their software is a LOT more sophisticated than Angry Birds, but in their own category (I am sure they will come up with a better category name, but for now it’s MMORPG), they are huge and growing. Their Eve Online game boasts over 300,000 monthly subscribers (I realize an improbable coincidence with the population of Iceland) and they say their next game, which won’t cannibalize Eve customers, is going to blow people’s minds. I visited the CCP offices in November and I haven’t been so impressed by a company, their culture, their energy, and their products in a very long time. And I meet with a lot of companies.
The point is that especially now that the use of the internet is starting to mature, a company of any size can become a global phenomenon, though that’s not huge news. The bigger news that I haven’t heard a lot of people talking about, is that when people think about who the Goliath’s like Microsoft, Oracle, Google, Amazon, VM Ware, etc. compete against, the number of “David’s” out there are becoming a pretty big foe in their own right, and the kind of warfare the Goliath’s are going to have to wage is very different from traditional World War I kinds of battles. Lots of little (comparably) tiny rivals that are very agile. Sure it will make sense to buy some of them up, but that won’t change the fact that the kinds of battles and wars the Goliath’s are in are different and they need to think that through.
So the answer to the question of whether Rovio or CCP will kill Microsoft or Google? It’s the wrong question. It’s the aggregation of all of the little CCPs and Rovios of the world that represent the new face of competition for the giants. Not centralized, not entirely knowable, dispersed all over the world, and very agile.
While this is true in the big software companies, because software is every where – I think this type of changing battlefield will touch most industries.
I have been following Coinstar for a really long time, in large part because the founder went to my high school (as did Bill Gates and TVs Batman Adam West for what it’s worth).
If you don’t know Coinstar, their model is pretty straightforward (Coinstar now also owns the video rental company Redbox by the way). You take all of your coins into a participating store, dump them all into a Coinstar machine and you get a voucher for the cash value (less a percentage fee they keep). Pretty good model for the participating stores, not just because they have people with money burning a hole in their pocket that are in their store, but also because the store can use the machine as it’s source of coin replacements so they don’t have to have the Brink’s truck stop by to re-supply them with coins (I am assuming that last part – it has to be true).
It’s OK, but the fee they take is 7%, which is a pretty big chunk of change.
That hasn’t stopped me from using the machines, but it always leaves a bad taste in my mouth and I have heard other people grumble about that amount as well.
But now it’s free!!!!
As it should be.
Where’s the business model in free? That’s actually pretty easy when you look beyond the “boundaries” of the transaction between the consumer and Coinstar, which is something Alice.com did in their industry and I expect we will see a LOT more companies figuring this out in the short term.
Now when you cash in your coins, you can select the store you want to spend the money in. If you commit to spending your money at, say, Amazon, then of course amazon is willing to cover some or all of the “7%” fee the consumer has been paying. That’s almost as close as you can get to 1:1 marketing, and the odds of the consumer spending that money at amazon are really, really high. I will concede that there’s some speculation on my part about exactly how this rethinking of the fee structure works (and feel free to correct me if I am wrong) but when I saw this advertised last weekend in The New York Times, I smiled as big as the Cheshire Cat because it seemed so obvious that they had shifted who pays the fee.
There are a couple of fairly actionable themes emerging:
1) Look at the transaction. Look at the transaction between the business and the consumer and see if there’s some other way to get more predictability or even to get someone else to pay the fees. Groupon obviously figured out a way to get big blocks of revenues to local companies – very clever, and now Coinstar has figured out how to get someone other than the consumer to pay their fee. It’s somewhat like looking at something that’s two dimensional (consumer and merchant) and making it three dimensional. Think about the basic needs or goals of the merchan. Groupon figured out how to deliver big revenues before products and services are really purchased/delivered. Coinstar needed a fee, but realized that making the consumer pay it was a very limited way to think about it.
2) Ask how the transaction matters. Alice.com doesn’t make any money selling their products. Neither does Costco. And Swayable is a good example of a company that has re-defined what the transaction is. In all three cases the transaction is a necessary but secondary piece that gets them their profits. You have to pay to be a member of Costco and shop in their stores and that’s where the profits come from (the dues). Alice collects age, gender and zip code of the person buying stuff, and that data is hugely valuable to marketers and thus, that’s where they get their money. In the case of Swayable, the “transaction” is you giving your opinion on something, and because they, like Alice and Groupon collect age, gender, and zip code, that information is valuable to lots of people who can marry you opinion with non-personally identifiable information.
All of these companies are great at illustrating the simple point that a lot is changing.
P.S. Back to Batman Adam West – does anyone know who his famous brother is? Was a lot more famous 20 years ago, but is still a name people on the West coast recognize. Send me a message if you want to know. ric at ricmerrifield dot com.