Tag Archives: internet

The downfall of big business

If you’ve been paying any attention to business discussion, you’ve heard something about how the rules have changed, business is different, blah blah blah. It’s kind of a required topic for a small business guru, so here’s my essay:

Once Upon A Time…

…communicating with far away people was very expensive, and only a few could afford to do it. And the more people you wanted to talk to, the more expensive it was, so that only a few big, very rich Corporations could afford to do it. And only a few, very rich Big Corporations could afford to pay those corporations for the right to use their communication ability. And so the era of Commercial Television was born.

In the era of commercial television, everyone wanted TV ads, because TV ads could sell anything, even if the product was terrible. Because communication was so expensive, “consumers” couldn’t afford to talk to each other, so they didn’t know the product was terrible until they bought it. This made Corporate Executives very happy, because their job was easy: make new stuff and buy TV ads! Small businesses couldn’t compete, because they couldn’t buy TV ads, so they went out of business. Corporate Executives liked that, too, because it left more “consumers” for them.

Then one day, a small pest came to the land of Commercial Television. It didn’t seem dangerous: it had a bright, colorful logo, not like the serious important-looking logos of the Big Corporations. And it had a silly name: Google. The Corporate Executives weren’t worried — no one would ever take such a silly-looking company seriously.

But they did! Google got lots and lots of money and sold its stock at really high prices and people bought it! And more pests came! Facebook! Twitter! YouTube! Blogs! Podcasts! Oh Nos!

Now “consumers” could talk to each other. And it turned out that consumers — all consumers, everywhere — are actually people. They do things that people do, like camping and laughing and procrastinating. They like things that people like, like connecting to other people, telling stories, and having their lives made easier. And they don’t like things that people don’t like, like being manipulated by Big Corporations into buying Stupid Stuff.

But the Corporate Executives weren’t worried. They knew the secret to persuading people: TV ads. Big Corporations spent more money on TV ads, so they could drown out the message from the pests, and run them out of business. Only it turned out that people had stopped being consumers buying stuff from the TV. It turned out that consumers liked being people, and talking to each other. They liked it so much that they turned off their TVs and talked to each other instead.

And so the Big Corporations sulked in the corner until they slowly starved to death, and everyone else lived happily ever after.

The End (for some)

The Beginning (for the rest of us)

Distillery Tours and Alternate Monetization

Since I’m in Kentucky right now with my family, in the heart of Bourbon country, we decided to take a tour of a distillery. We toured the grounds at Maker’s Mark in Loretto, Kentucky, and it was pretty cool. We got to walk down the bottling assembly line, stand in the room where they cook down the corn at 212 degrees Fahrenheit (not actually very appealing on a day when the ambient temperature was 98 Fahrenheit), and look at the 500-lb barrels of White Dog Liquor aging itself into Bourbon. And best of all? It was all free, even the two servings of bourbon at the end of the tour.

There are other ways to monetize

A lot of people have come up with ways to make value. I mean, there’s always something you’re better at than other people, by talent or training, or both. It’s not that hard to come up with something that other people like.

But then, many times, they insist on charging for it.

Now that’s OK. If you’re providing value, you should be able to get people to pay for it. But it’s not the only way to monetize.

“Free” doesn’t mean you’re not making money

Take the distillery tour. They let me into their factory, gave me an education on bourbon, and let me drink some of their product, for no charge. Suckers, right? Giving away their product for nothing. Providing value for free when they could have charged.

Well, let’s look at the “nothing” they got in return.

Shoppers

The tour, naturally, ended in the gift shop. Where, it happens, you can buy their bourbon. Or any number of other souvenir items, most dipped in red wax (the signature style of Maker’s Mark). Since a single bottle of bourbon probably pays the tour guide’s wages, and there were 15 of us on the tour, they’re certainly not losing money. The probably could have charged $5/person for the tour, for a total of $45 in revenue. But by not charging, they made us feel appreciated, and that we were getting something for free, and like we had money to spare. And at $20 per bottle, with 5 bottles sold (that I saw), they made $100 in revenue.

Educated bourbon drinkers

Bourbon is different from beer, and should be drunk differently. Appreciating the distinctions between bourbons, and recognizing a fine bourbon, is much easier when you know how to appreciate the scent, the taste, and the aftertaste. The tour guide educated us on the correct glassware, where the bourbon should be placed on the tongue, and other notes for proper bourbon appreciation. This education won’t make a difference in dedicated abstainers like me, but it could well make the difference between an indifferent bourbon drinker like my father and an enthusiastic bourbon drinker like my brother, which can in turn make the difference between a bottle every few years and a bottle every few months.

Brand Loyalty

People like familiarity. They like stuff they know about. I now have a relationship with Maker’s Mark: I’ve met their people, walked their grounds, learned about their signature red wax. When I walk into a liquor store, there’s only one bourbon I’ll recognize. Which am I most likely to buy?

Product Exposure

As I mentioned, we each got two servings of bourbon at the end of the tour. Glass #1 was the standard, original Maker’s Mark. This glass would be worth giving away just for the benefits mentioned above. But we also received, in Glass #2, the new pre-mixed Maker’s Mark Mint Julep. This product (dipped instead in green wax), is fairly new, and relatively few people are even aware of its existence. By offering it to everyone who goes on tour, they have an effective way of spreading the word about a new product for way less than the cost of a Superbowl Ad.

Think about your monetization

Does this mean you should never charge people for your value? Of course not. Even in the above example, the distillery is charging for their bourbon. The goal is simply to get the proper mix of direct and alternative monetization.

Don’t just slap a price tag on everything you create. Look at everything you do, and ask yourself.

  • Is this of value to my customers? Why is it of value to them?
  • How much would someone pay for this?
  • How else could I monetize this? Sell ads? Advertise my own products? Affiliate marketing? Lead customers towards high-margin products?
  • What other benefits could I derive from this? Traffic increases? Education? Buzz in social media?
  • What is the best way to derive maximum benefit from this value I’m providing?

Resources for Further Reading
Free: The Future of a Radical New Price

What Would Google Do?

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The New Concept of Marketing

Once upon a time, when I was a kid growing up in the 80s, mass production was the rule. The economics looked something like this:

  • My local cobbler can make a pair of shoes that fits me perfectly. It costs $50.

  • My local Payless Shoes can provide me with a pair of shoes that fit OK. They cost $20.

By ignoring their customers’ needs, and focusing on what will turn out the most shoes in the least time, manufacturers were able to drastically reduce the cost of shoes. In turn, we all got used to ignoring our own needs, in order to get lower prices.

The 4 Ps of marketing, then looked like this:

Price (as low as possible) ->
Product (whatever we can make cheaply) ->
Promotion (make people think they want our product) ->
Place (wherever we tell them to go)

In other words, you made what you wanted to make, and then spent money to convince people to buy it.

The new rules

I admit that shoes are still pretty much produced the same way. But your local shoe store has many more options, and there are thousands more online. Whatever your requirements, you can find a shoe that meets them.

There are several driving forces for this, but the long and the short of it is that power has shifted. We no longer have to settle for a product that’s good enough. We can almost certainly find a product that’s ideal.

Many, many companies have yet to realize this. But the intelligent ones have shifted their focus from internal to external. A 5th P has been added, to look like this:

Participation (Talk to people, find out what they like and what they want) ->
Product (Whatever the market wants) ->
Price (as low as the market will bear) ->
Promotion/Participation (let people know that you have what they want) ->
Place (wherever is convenient for your customers)

That is, you make what people want to buy, and then let them know it’s available.

What it means to you

The good news: you no longer have to be a conniving, deceptive weasel to be successful in business. Marketing is no longer about manipulating people into buying stuff they don’t want or need.

The bad news: you can no longer make what you want and manipulate people into buying it. You have to make what other people want.

This brings us back to the venn diagram of happiness in business:

You have to find something that overlaps between what you want to make and what people want to buy.

But at least you don’t have to be a lying scumbag.

Resources for Further Reading
Happiness In Business Diagram
Product Is the New Marketing
The Price Is Right

Your Monetization Is Not Your Business

What is a “business”? Google defines it as “the activity of providing goods and services involving financial and commercial and industrial aspects.”

That’s still accurate, but the underlying methods for accomplishing financial goals have changed significantly in the past 10 years. It used to be that the “providing goods and services” and the “financial and commercial aspects” were closely related. The value you provided was to (for example) sell cars. People gave you money in return for cars.

But today, just about every product in the world is a commodity. There are more than a million websites where you can buy a Mercedes Benz. So providing me a Mercedes no longer counts as “providing value”. You have to give me extra value, to entice me to buy it from you.

What Business is Amazon In?

Amazon.com makes money selling books, everyone knows that. But that’s really not their value. I can get most of those same books from my friendly local bookstore, or from Barnes&Noble.com, or from Better World Books. And yet Amazon is far and away the #1 bookseller on the web. Why?

Because Amazon provides information. If I need a new book, I don’t have to browse randomly through a genre hoping to find something I like. Amazon will pull out and show me books it thinks I might like. If I’m interested enough to take a look, it will give me ratings of the book, ratings of the author, reviews from readers, and “people who bought this book also bought”. All of that allows me to more quickly find books that I like, including some new stuff I might never have found in my random-genre-browsing method. And, despite the excellent service at my friendly local bookstore, I can’t get all that information from anywhere except Amazon.

If Amazon.com decided to stop selling books, they could still monetize their information: they could sell ads to related products & services, they could join an affiliate program with other booksellers, they could charge a membership fee for anyone who wanted access to the information, or a per-book lookup of $.25 per review, or $1 to get a personalized recommendation list. They could forget about dead-tree books and push hard for the use of their Kindle. There are lots of ways to make money on the information, because it’s valuable information.

But…
If Amazon.com decided to eliminate the information part of their site, they would quickly lose their book sales as well. There would be no reasons to choose them over BarnesAndNoble.com or my local Barnes & Noble. And most people, given the option, would rather support their friendly local bookseller and get their book immediately.

Amazon is not in the book-selling business. They are in the book-information business.

Your Monetization Is Not Your Business

Let’s look at the top 25 websites (according to Alexa.com):

Assorted Googles
Value: make it easy for you to find content on the web
Make money by: selling ads to people who want to sell to you

Facebook
Value: make it easy for you to keep in touch with friends and family, yet also easy to ignore Uncle Arnie’s repeated invitations to Farmville.
Make money by: selling ads to people who want to sell to you

YouTube
Value: entertainment (some education)
Make money by: selling out to Google

Yahoo!
Value: make it easy for you to find content on the web
Make money by: selling ads to people who want to sell to you

Windows Live
Value: make it easy for you to find content on the web
Make money by: selling ads to people who want to sell to you

Wikipedia
Value: easy-to-find information that’s as reliable as the Britannica on basic academic topics, and far more reliable on pop culture topics.
Make money by: asking for donations

That’s the first one on the list — at #6 — that even comes close to asking you to pay for the value they provide. And they’re still not using the traditional business model of selling you the information. You can have the information whether you pay or not.

The next one that even comes close to making you pay is #25 — ebay.com. And ebay doesn’t charge you for its major value: helping buyers & sellers find each other. It doesn’t charge you for browsing auctions to determine the fair market value of an item you may have. It only charges you a tiny fee to actually sell the product.

This is the new model of business: provide value, but don’t charge for it. Figure out who your audience is, and what they would pay money for. Find a way to get a piece of that action. Repeat.

Your Value Is Your Business

Provide value for people. It’s not an afterthought to your business, it is your business. If you provide value, I can help you monetize it. But if all you have is a monetization method, I can’t help you create value.

You Don’t Have To Be A Rock Star

I just finished Chris Anderson’s book,  The Long Tail.

The long tail talks about the alternative to top 10 hits.  We are so used to thinking in terms of mega-hits — multi-billion dollar Hollywood movies, gold and platinum albums, #1 on the New York Times Bestseller list — that we forget how many works of art are NOT great #1 hits.  This hit-oriented culture is the result of distribution channels that make it hard to find niche market works — the movie theatre can only show 20 movies, and needs at least 10,000 people to go see each of them; the music store can only carry 5,000 CDs and the bookstore can only carry 100,000 books.  It seems like a lot, but they’re each a tiny percentage of the art works created each year.

But now we have the internet.  If you’re interested in lime-green bowler hats, or websites about lime-green bowler hats, or discussion groups about lime-green bowler hats, or books about lime-green bowler hats…. It’s out there.  You can get it.  And the person who makes it can sell it to you.

The long tail is best explained with his graph of Rhapsody Music Downloads.  The number 1 downloaded track was downloaded 180,000 times this month.  This is a LOT.  But it trails off quickly — the #5000 ranked track is only downloaded a few thousand times / month.

Now get WAY out there into the tail of the graph.  The #400000 ranked track was only downloaded 20 times this month.  The #800000 song was downloaded only 5 times.

BUT… say the average in that range was 10 downloads/month.  That’s 800,000 – 400,000 = 400,000 songs, downloaded 10 times/month, at $1/download.  In other words, $4,000,000 in this month.  That’s pretty good money for a bunch of pathetic non-hits, eh?

A lot of people are intimidated out of starting a business, or selling their photographs, or writing a novel, because they’re thinking in terms of #1 hits.  They think that any project not getting 180,000/month is a failure, and they see no way to get 180,000 downloads in a month, so why bother trying?

What the long tail says is that there’s a lot of room for non-hits to still be successful.  Maybe you won’t ever make $100,000/year from your novels or your website.  But if you could make $25,000/year doing something you love, wouldn’t that be pretty awesome, also?  Even if you had to get a part-time job to cover the difference, it’s still an improvement on 40 hours/week doing something you hate.

You don’t need to find something that 100,000 people will love.  You only need to find something that 1 six-millionth of the world’s population will love.

Resources for Further Reading
The Long Tail
Wikipedia: The Long Tail
1,000 True Fans