I spend a lot of time looking at and writing about disruptive business models (many of them are discussed in my most recent book, Surviving a Business Earthquake, and lately I have been talking about a handful that I think are really meaningful that will continue to mature over time and work their way into lots of other industries.

1) Friending.  No, it’s not new.  At all.  But the friend trend that I have noticed is that the practice has jumped the social networking fence and is becoming useful as a function in not-so-social industries.  A company that I have blogged about before, doxo, is the one that really opened my eyes to this.  What doxo figured out is that it’s OK for us to have to log on to our credit card site and our utility site, and our Fidelity site with our passwords and what not, but it’s better if we can do that from a single place, and effectively “friend” the businesses that we interact with on a regular basis.  Call it a handshake or friending or something else, but now that we have gotten so familiar with it through places like Facebook and LinkedIn, we understand the definition of “friending” and “connecting” from these sites, and now these terms and their actions are primed to jump into other places that are not social, but where certain levels of trust need to be established.  This is big and the companies like doxo that figure that out, there are some great new businesses to start.  And for already established organizations, now’s the time to put on your thinking cap and figure out where friending may play a role for your employees, customers, and partners.

2) Getting nothing, but paying for it. Farmville from Zynga is probably one of the more familiar examples of this, though Icelandic gaming company CCP is another great example.  In a gaming environment, if you want your farm to do something more or in Eve online you want your spaceship to be cooler or faster and you don’t want to have to do all of the hard work to make it happen, you can pay for it so that your gaming experience is better.  With Eve, you are already paying a monthly fee to play the game, and you can also pay a lot more to personalize it faster.  So you are paying for something and you don’t get anything tangible for it.  I predict that as people get more familiar with this notion, like friending, we will see this bleed into other industries.  To be clear this isn’t like buying a ring-tone that is intellectual property, and I am clear that you can argue that this is just paying more for the entertainment you are already paying for, to be more entertained, my point is simply that as people get familiar with the idea of paying and not really getting anything tangible for it, we will see this proliferate.

3) Getting something, but not paying for it. This is a subject I have blogged about before as well, most notably with alice.com, the online merchant that sells goods at cost with free shipping.  They make their money by charging huge rates for ads and coupons because they provide the age, gender, and ZIP code of customers that respond to the ads and coupons in real time.  Now I still think that’s a huge idea, but when I found out Coinstar (dump your coins into a big green machine and out pops cash you can spend) was no longer charging a 7% fee for the service they provide, and now the service is free to the customers (you can still pay the 7%, but if you choose to load up all of your cash on a card for a specific merchant, like amazon, then it’s free to the customer, and amazon pays Coinstar a fee).  Costco is actually another company that doesn’t make any money selling their products, they make their money from their membership dues.  The monster trend I see here is companies figuring out how to not make the customer pay for their costs – so the customer gets a better deal.  Back to Zynga, I am not an expert in their games, but I wouldn’t be at all surprised to see them selling bottled water for the farmers and the user getting the choice between Dasani (from Coca-Cola) or Evian and then selling the data of age, gender, and ZIP code back to those companies about who chose which product, for example.

4) David beating Goliath. Historically, a tiny company beating out a monster company has been rare, for really obvious reasons.  Amazon took out Barnes & Noble before becoming a monster company in their own right, being way more than just a book store, but that’s not the kind of trend I am talking about.  The poster child of this new trend is Rovio, the makers of the crazy-popular game Angry Birds.  It has been a top free and paid application in the iPhone store for a very long time.  What I love about the story is that it’s still a company with less than 20 employees based over in Europe.   So the Rovio’s of the world can stay tiny companies and create markets that we would expect someone like Microsoft or EA Sports or some other massive gaming company to own.  Will someone buy Rovio?  It kind of doesn’t matter.  The point is that with the platforms of smartphones and the internet in general, tiny agile companies can have a very real,very large global footprint and be very successful.  I am not saying that Rovio is going to put EA Sports out of business, I am just saying that they are competing in a space that is way bigger than they are, and they are winning big.  I think we will see a lot more Rovio’s soon, and that’s the trend.

5) Adding a third party to two party transactions. This borders on sounding like a repeat of #3, or a nuance of it, but I felt it an important enough nuance to give it its own bullet.  In most traditional business models, there is the merchant and the customer (and these days at least one middle man).  Companies had to charge the customer enough to cover their costs and make as much profit as the laws of supply and demand would permit.  The fact that Alice, and Costco, and Coinstar can get their costs covered by someone else, that is massive and I think it’s the biggest trend of all.  Yes, it’s great that the consumer wins by getting a better deal (point #3), but taking the basic two party transaction, and adding a third party is a pretty incredible thing to be able to do.  Per my Dasani water comment in #3 above, I wouldn’t be surprised to see Zynga get more into this space (if they haven’t already – as I said -I am no Zynga expert).

So those are the really big trends that I have been seeing and talking about lately.  I’d love to hear your feedback (and corrections).

-Ric

P.S. And we are working to fix the issue that if you do an internet search on my name you get an unexpected result.  As you might expect we are investigating whether we need to firm up security a bit on the site.

There is little doubt that there will be a lot of activity in the world of mergers and acquisitions this year.  Sure Facebook and Groupon will go public (though Groupon has enough flaws, I wouldn’t be at all surprised to see them blow up or get passed by Tippr or someone else – remember when MySpace ruled the world?) but everyone has loads of cash, and lots of companies have huge stock valuations that make M&A cheap.

So why not buy some revenue or market share or more differentiation, or greater profitability in these circumstances?

I think the list is very long on who will get bought, but I have picked 11 (since this is the year that goes to 11 . . .that I think will go, and I have also made some suggestions about who will gobble them up.

I did try to break them into two categories, consumer/social and business.  One of the reasons I did that was because I read a report from Merrill Lynch dated January 4, 2011 called “Eleven Internet Sector Themes for 2011” which is one of the best investment reports I have ever read.  One of the statistics they cited was that in 2010, 14% of all internet traffic was spent on social networking sites.  WOW.  Talk about a huge trend.

I put together a diagram, but here’s the list with a little bit more detail (in random order):

1) doxo.  Doxo is a company I have blogged about before.  They offer free online bill pay services – one stop shopping and they keep your billing history.  Sounds like a yawn until you learn more about how they make their money (they cut down on postage for the billing organizations and get paid in return).  Because they have done the legwork to establish the major relationships needed with the billing organizations, the barriers to entry in this space are pretty high, and with such an appealing free service, I think any number of existing big companies would be smart to buy them into a space that will see lots of users and not a lot of competition.  Anyone from Concur to Microsoft would be smart to buy them now when they are in their infancy.

2) Yelp.  There was a time when this was a competitive space, but now it’s not and Yelp has won.  That’s not really news.  What has changed in the last year as we have seen with things like FarmVille is that everyone likes to see where things stack rank.  People want to vote for their favorite places and I think with the model Yelp has, they can make the voting more social and expand fast in a world where 14% of web traffic is social.  Obviously Facebook and LinkedIn would be smart to look at them, as would Amazon and Netflix where customer ratings are so vital.

3) Tippr.  I mentioned them earlier.  If Groupon is really already worth $15, spend a billion to get Tippr and aggressively highlight the major flaws in Groupon, and win.  Sure there’s risk, but lots of companies have a billion dollars to burn and Groupon’s flaws are so obvious, the right team could crush them like a tube of Pepsodent in no time.  If Yelp can afford them, this would be an outstanding brand extension for them, but it’s also a good play for Amazon and others.

4) Gist.  I am a little amazed Gist didn’t get acquired in 2010, but as the social web gets sticker, the more attractive Gist gets.  Gist aggregates all of our social interactions into one place.  No, it’s not really painful to alt/tab from LinkedIn to Facebook, but we are a lazy lot that loves convenience – we buy pre-cut salad in a bag for crying out loud.  And the think about Gist is that it makes the buyer the main page of all things social.  Smart for Facebook, but it would also be really clever for someone like Microsoft who, other than an investment in Facebook, is otherwise absent in the social world.

On to the world of business  . . .

5) ShiftHound or Shiftboard.  Shiftboard is one of this niche companies that does one thing and they do it really well.  For organizations that work in shifts, they let the people who work the shifts sign up for the shifts they want and they also let companies assign shifts.   It might sound like a bit of a yawn, but one thing you hear over and over is that it’s not really clear to people who does what in cloud, so the more specific applications you have, the clearer you can be to people about whether you are relevant to them.  That’s why I think anyone from Concur to Salesforce, to Microsoft would be smart to start buying companies like Shiftboard.  ShiftHound is roughly in the same space but I am told they are true SaaS staff scheduling combined with great Open Shift Management (OSM) functionality for any small to mid-size entity that is scheduling shift-based staff.

6) Limeade.  Limeade is another sleepy little company that may sound like a yawn, but they have now been around long enough to have a pretty interesting customer base.  Essentially they have figured out how to get people to personalize their plans to get healthier, including, but not limited to, weight loss.  I have blogged a lot in the past about the connection between obesity and diabetes and the out of control health care costs.  If someone like Kaiser Permanente were to scoop up Limeade, not only would it send a really powerful “we care” message to their customers, it would also help them help their customers reverse the trend of rising health care costs.

7) ReputationDefender.   I am also surprised this one made it through 2010.  Most of us have no control over what information about us is out there on the internet.  ReputationDefender gives you complete control.  Given how much bad press FaceBook has gotten about subscriber security, I expected them to buy this company, but at this point, our personal security and privacy is becoming so important, I would be surprised to see Google or Microsoft to buy them.  It would send a really powerful “we care” message that would boost any brand.

8) Concur.  Already a thriving cloud services company in expense management, they are they only major player in this space which Merrill Lynch estimates at a $639 million space.  So Amazon, Google, or Microsoft could buy them to further clarify the role they are playing in cloud. Salesforce could use them to further extend their platform message.  Concur isn’t cheap, but this is one of those cases where you can ask how expensive it will be to NOT buy them given how successful they have become.

9) ActiveWords.  OK, not really a cloud play.  Another sleeper of a company, but if you want to get some differentiation in a huge area where today there is no differentiation, you buy ActiveWords if you have anything to do with keyboards as a hardware play or a software play.  Anyone who has an Apple product knows how bad that software is at helping us finish typing a word, ActiveWords has this all figured out and has taken it to the next level where you tell it when you want it to launch a web site.  So if I tell it that when I type “NYT” to ask me if I want to launch the web site for The New York Times, it works.  Talk about saving time and keystrokes. . . . No brainer for Apple or Microsoft or Motorola. The folks at ActiveWords have figured out a key component of productivity.  Saving time does equal saving money. 

10) Symantec. OK, not so much of a sleeper, but they are one of the gorillas in the $4.25 billion security space.  Buy market share, revenues, and more differentiation.  Sending a “we care” message helps the brand, why wouldn’t Microsoft or Google buy them?

11) I4CP.  The institute for Corporate Productivity may sound like another yawn, but HR related Cloud services are a $3.36 billion space this year.  I4CP is profitable and growing and they have an amazing list of clients.  Concur, Salesforce, Microsoft, Google would all benefit from additional services and this one wouldn’t cost them an arm and a leg.

For years I have wondered why health insurance hasn’t been treated like other insurance, like car insurance.  With car insurance, the riskier your profile, the more expensive the insurance.  You get caught driving drunk, you have accidents, you drive a sports car, those all make you higher risk to an insurer, so your rates reflect it.

Not so with health insurance.  There aren’t really checks in place to know if you smoke, or if you have a horrible diet and become obese.

But when I bring it up people would say “oh, that’s too personal, that will never happen” – talking about giving people incentives to be more fit and eat/drink smarter, and stop smoking.  But every time I hear that, I can’t help but think it’s just bad business and that usually drives corporate behavior.  That said, as long as the insurance companies are making enough money and the companies that pay for our health care (when we have jobs) can afford it, a system like this can be sustained, as business-bizarro as it is.  And yes I realize that some people have medical conditions (like thyroids) that make weight control hard, but I also know that there are often tests like things like that so people wouldn’t be punished for things that aren’t their fault – Type 1 diabetes is a good example of that.

But in recent years, we have seen that these costs skyrocket to a point that’s no longer sustainable for a lot of companies, like Safeway and drastic measures are needed to curb these crazy insurance costs.

So I wasn’t at all surprised to see this article by Ron Lieber the other day talking about new programs that incentivize healthier living.  With cash.    And I totally agree with his point about the boss handing out $100 bills at the end of the year in front of everyone.  That would have a very big impact.

Anyone who has ever managed a team, but especially a sales team, knows that the way people are measured and rewarded causes them to behave in very measurement-aligned ways, so of course people are going to put down the Big Mac when there is a stack of $100 bills waiting for them.

And of course people will keep eating the Big Macs (and Whoppers, and Wendy’s this, and KFC’s that, and whatever Jack-in-the-box is pushing this week) if there is no reward (or punishment) for the behavioral change.

I honestly don’t understand why this took so long, especially after we have all been conditioned to expect this sort of thing from car insurance (see above), homeowner insurance (don’t buy a house on  flood plain), life insurance (if you have ulcers, life insurance costs a lot more), etc.  But I am really glad it’s finally here.

This is the sort change that could really have a transformational effect on the cost of health care that companies are paying, but more importantly, it can cause people to make smarter choices about their lives and their lifestyles.  A major seismic event in the world of health care.  An earthquake.  Excellent.

Speaking of earthquakes. . . you might check out my new book which is called Surviving a Business Earthquake that has just come out exclusively as an eBook through the Apple iBook store.  It’s only about four dollars – I hope you like it.

-Ric

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.

-Ric

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?

-Ric

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?

Absolutely not.

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?

Absolutely.

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.

-Ric