Tuesday, May 27, 2008

Borders Books, Death By Amazon

Borders recently announced it has severed its relationship with Amazon. Dah!?!?! It's like a guy feeding a monster down in his basement until it grows large enough to demolish the house and eat his family in the process. So Borders has now taken borders.com back from Amazon. And what???? Business as usual won't cut it for Borders. The brick and mortar model isn't nimble enough in its current incarnation to survive long term in the world of the web.

Bloggers criticize or congratulate. Let's take a shot at constructive suggestions for the evolution of Borders. It has to be outside the box because this company is on life support. Here's a thought: get into the used book market. How? Give buyers store credit for 1/2 the selling price of a user book on Amazon when they return book after reading it. Then resell the book on Amazon for cash. Why? You build a deeper relationship with the Borders buyer. I have sold used books on Amazon but it is a pain. If Borders would do it for me and save the hassle, I'd be glad to give them 50% of the revenue for the trouble. You could do the same thing with CDs. Why would a person return a CD? Once a listener has copied the tracks onto their MP3 player, a fair percentage of the buyers have little use for the CD. It may help stimulate CD sales if buyers know they can get a return on the investment.

Next thought, become a book publisher and music recording label for unknown artists. How can Borders push up its profit margin? By cutting out the publishing companies and music labels. If a writer or artist takes off, then Borders is the only outlet for their work. How to discover new artists? Let the customers tell you. Start off placing samples of new artists online. The users vote online ala digg.com. The artists with the most diggs move up into more prominent placement within the web site. The cream of the crop go to test market in selected brick and mortar Borders stores as well as on borders.com. Those that show well in limited release get placement in all borders.com stores coast to coast. I'm thinking contests and press releases. This could be big.

Borders, are you listening? Or are you just going to fold up your tent and die? Feel free to add you own ideas for the survival of Borders.

Sunday, May 25, 2008

Schooltube, Carving Up A Tasty Market Pie

Youtube innovated and came to dominate the emerging market for online video sharing. Google thought so much of this new market that they purchased Youtube for $1.65 billion. How does a startup compete with the Godzilla of a target market space?

I really only see two ways to go about it: (a) build a better mousetrap or (b) fragment the youtube user base concentrating on a small segment with special needs. Perhaps there is technology out there better than the youtube video interface that I am unaware of but option A looks to be dead in the water. Even if a competitor came up with a technology innovation in the area of video sharing, patent protection would be necessary to avoid adoption of the innovation by youtube. And patent protection is a thin veil for an underfunded startup to rely upon.

St. Louis startup Schooltube took a crack at option B. Every startup should have an unmet market need it aims to address. In this case, it was schools who block student access to youtube given that this service contains vast amounts of content inappropriate for viewing by school children. Schooltube's solution? Limit posting of video clips to those approved by teachers. Schooltube verifies with the school a teacher's status. The teachers then authorize the posting of individual videos by their students. If teachers vet the clips, it stands to reason that schools will not block the site. Thus, Schooltube provides a kid safe web site where students can share video clips they've created as school projects. See St. Louis Post-Dispatch story. I love the business concept!

Wednesday, May 21, 2008

Microsoft Plan D, just buy the friggin users

Monkey Boy and the brain surgeons up in Redmond have now moved on to internet strategy Plan D. A quick recap of the history of Microsoft internet game plans--

Plan A = pretend the internet doesn't exist (failed).
Plan B = build our own search engine / web portal (failed).
Plan C = buy a successful search engine / web portal, Yahoo (failed).

That brings us to Plan D. As luck would have it, we have our hot little hands on an uber-secrete transcript of the meeting held deep in the bowels of Microsoft world headquarters where Plan D was hashed out.

Balmer, "OK, Yang told us to take our $47.5 billion and shove it where the sun doesn't shine. Get a load of the nerve of this guy!"

Corporate Lackey #1, "Are you sure he got the right number of zeros? Maybe Yang thought the offer was $47.5 million? Let's go back and talk to the guy to see where he's coming from."

Balmer, "No damnit! No! I told Yang to go Cheney himself. F' Ying Yang. He's friggin jumping in bed with Google. F' Yahoo."

Corporate Lackey #2, "Um boss, if you burned the bridge to Yahoo ... what the F' are we supposed to do now?"

Balmer, "You're asking me? You mean I pay you two jokers oodles in cash and stock options and god knows what other benefit goodies but all you can do is stand on the corner with your dicks swinging in the wind saying, 'What do we do now Steve?' That's just dandy! We got $47 billion to invest so you two assholes better come up with something."

Corporate Lackey #1, "Hey, this might sound crazy but I had a wild brain fart. Why don't we just buy the users? Politicians buy votes. Let's buy the users."

Corporate Lackey #2 starts to crawl under table to avoid the fallout from the volcano eruption sure to come from Monkey Boy in response to this suggestion. But, to his amazement, Balmer calmly considers the idea.

Balmer, "Hum, you might just be on to something there Jonesie. Get some accountants in here to calculate how many users we can purchase with $47 billion. How will it work? Like how do we decide who gets the money?"

Corporate Lackey #1, "We could run it like the Discover card, cash back on purchases through our web site."

Balmer, "Brilliant! Jonesie draft up a proposal for my new internet strategy and ship it up to the board for approval. Then get somebody on a press release pronto."

See beta of Microsoft's new products search site with cash back feature and Yahoo news story on the Microsoft cash back strategy. Hey, here's an idea--why not just build a better search engine? One users willingly engage with rather than are bribed to use. Oh, never mind.

Sunday, May 18, 2008

Promoting Your Business With Blogs

Blogs are a great tool of business. You blab away about a topic connected to your business hopefully highlighting yourself (and your business) as an expert in the field. This particularly important in the service industry. This applies strongly to professional services (i.e., doctors, lawyers, accountants, IT professionals) but I also include here any service where skill, training, or artistic talent have importance. What to promote your restaurant or catering business? A blog is a great tool. If your business web site is an important element in generating sales for your business, then a blog (or multiple blogs) should be an integral part of your online marketing strategy. Why? Because each blog post generates a link back into your business web site. Search engines value links in ranking web sites. Ergo, inbound links are a business asset.

Blogs plural? Yeah, as many target markets you have or differentiation of service can be bifurcated into separate blogs. For example, you have a small, one-attorney law office that derives the bulk of it's revenue from divorces and criminal defense representation. Then create two blogs, one for each of the separate practice areas.

Blogs are free to set up and easy to create posts. There are many free places that will host your blog but I use blogger.com. Why? They are owned by Google and it appears to me that blogs from blogger get ranked and indexed faster than my other blogs. I have nothings but anecdotal evidence on this point, however.

Promoting Your Blog
What is the use of taking the time to create a blog if no one reads it? If the blog generates it's own inbound links thus accruing Google pagerank value, then the blog has value merely as an organ for passing links on to your business blog apart from any readership it may have. But by building inbound links, traffic to your blog usually increases as well.

That said, blogs have several advantages in promotion over business sites. One is social news aggregators: i.e., digg, mixx, propeller, reddit. Post your articles on these social news network sites to generate links to your blog. Then, encourage your co-workers, family, friends vote for your article on the social news network site. For digg.com, the vernacular is that you "digg" the post. I also encourage you make comments on posts within these news network sites. Why? Your comments link back to your profile page with the site and your profile page has a link to your blog. Also, you can tuck links to articles in your blog within comments. Each of the four sites listed above has a slightly different audience and user level. Digg is the biggest. For political articles I write for my blogs, reddit generates the most traffic (in my experience). This is probably due to the fact that the content of my works meshes best with the audience on that site.

But for generating links, the smallest of the four sites is the leader for me--propeller. Here is a link to my profile page on propeller. Notice it has a google pagerank value of 4. My commercial site that generates the income I live on only has a pagerank value of 5. Every article I post to propeller automatically gets posted to my propeller profile thereby generating a valuable link. Secondly, if you give your article popular tags when posting it propeller, the article will also be posted to pages for each tag given. For instance, here is a propeller group page for John McCain.

Do you read news and blogs on the web? Do you occasionally post comments? Many blogs and news sites allow persons leaving comments to backlink from the comment to their blog or web site. This is a free link. Take advantage of it. Posting a comment can literally take seconds and generates a link. Encourage your employees and co-workers to use the same practice backlinking to your business web site or business related blogs.

Lastly, there is del.icio.us, a mega-site where users store bookmarks. But it can be used to generate links as well. Your bookmarks stored at del.icio.us are public. The tags you give to the bookmarked pages get cross-referenced with tags given by other del.icio.us users. When a particular page is bookmarked with the same tag by many people, del.ico.us posts the page to an aggregate page. Thus, links are generated. This is a quick and easy way to build links but, to be effective, it requires the participation of co-workers, family, friends.

One final thought, link your blogs to each other. It's a mutual assistance treaty as each blog helps promote its sisters.

Sunday, May 4, 2008

Is Monkey Boy F'ing Himself?

Reports have it that Microsoft CEO Steve Ballmer and Yahoo CEO Jerry Yang sat across the table from each other engaged in a ridiculously high stakes poker game. Ballmer offered $33 per share (or $47.5 billion). Yang counteroffered $37 per share ($53.3 billion). What's $5.8 billion between friends? Seriously, they were only about 10% apart. I'm sure Yang expected Ballmer to offer to split the difference at an even $50 billion, they'd shake hands and send out a joint press release announcing the sale of Yahoo. But it didn't go down that way. Monkey Boy was being pressed hard by Yang and he didn't like it. Ballmer told Yang to go fish. Actually, I highly suspect (but have no proof) he told Yang to perform a metaphysically impossible act on himself, the same act VP Cheney suggested Sen. Leahy perform on himself. Ballmer then pulled Microsoft's offer and went home. Link.

Microsoft previously threatened to launch a hostile proxy fight to wrestle control of the Yahoo board from Yang; however, they've abandoned that idea. Its occurred to Ballmer that before they even get the proxy war troops geared up, Yang drops a poison pill on Microsoft's head spoiling the fight. On to the larger question, was it smart for Ballmer to walk away from Yahoo at $50 billion? I haven't really dug into the financial valuation question regarding Yahoo's stock at present but, really, it doesn't matter. In my opinion, Microsoft has to pay. Forget the theoretical valuations.

Up a Creek
Microsoft has backed its guerrilla sized ass into a corner. For years they pretended the web didn't exist, it was a PC universe up in Redmond. When Netscape's browser was a huge hit enabling an explosion in web traffic, Microsoft simply purchased the next best browser out there and started giving it away (thereby killing Netscape). Problem solved, right? Microsoft went back to its desktop world. Then came the web portals and web search engines such as Yahoo and Altavista. Again Microsoft snoozed. I'm sure they figured they would get around to crushing these pesky net companies if and when they posed a threat to Microsoft's software business. What do search engines and portals have to do with software anyway? Microsoft formed a half-ass search engine of its own and basically carried on business as usual.

Fast forward to Google. At first, they are just a bunch of computer science geeks who build a better search engine mouse trap. No skin off Microsoft's nose so far. The game changer actually came from Yahoo when they acquired Overture (formerly, goto.com). Instead of the silly, fragmented banner ad market of before, Overture created a pay-for-placement text ad market that worked on both search engine results and contextually inside a network of web sites. This business model signaled the coming of age of internet advertising. Big money started pouring into web search and content key word advertising. Google, ever the better mouse trap guys, took the Overture model and improved it. The advertiser interface on the old Overture site was set up for mom and pop players. It was cumbersome for large scale ad campaigns. Google cleaned that up and made one other smart move: amalgamation of the millions of small web site publishers into the the Google ad network by cutting them a reasonable slice of the revenue pie. The small publishers flocked to Google in exchange for the best revenue return in the industry. Google Adsense was an unparalleled hit in the web advertising world.

Now Google is a monster company with a bazillion $ market cap. Too big for Microsoft to kill or eat. Trouble. Microsoft starting pushing back. They used their monopoly on the desktop and started integrating MSN.com search into all their desktop applications. Given Microsoft's market power on the desktop, its no small issue for Google. That's when Google decided to invade the desktop. They created a utility designed to run on the desktop that searches the files on your PC or MAC in the same fashion as Google search. But the next shots from Google were heavy caliber. Realizing that in the current internet age, applications can run on the web just as easily as they run on the desktop, Google created business suite software directly competitive with Microsoft's office suite: see Google Docs, Google Calendar and Google Spread Sheets. Google is giving these products away for free. Can you say Netscape? Yes, Microsoft is getting baffoed up the rear by Google just as it had done to Netscape decades before. Certainly, Google's online business apps have a long way to go. They're not yet in the league with Microsoft Office. But do you want to bet against the billion dollar better mouse trap guys? I have complete faith Google will continue to upgrade it's online business suite.

So What's That Got To Do With Yahoo? -- Squeezing Ballmer's Testicles
Were we talking about Yahoo? Oh yeah, back to Ballmer and Yang. Here's what's going on. With Google's phallus in his rear end, Ballmer finally realizes Microsoft needs to be a heavy weight in the web world. Software now runs across platforms (desktop and online being but two). Google search, at its core, is a piece of online software. The software jungle can only hold so many behemoths and behemoths navigating within a confined space inevitably run into each other. Microsoft is currently king in the corporate software market. Google is king in the search / online advertising market. Google is invading Microsoft's primary market, therefore, Microsoft is compelled to conterattack. Therein lies the problem.

Yahoo is #2 in search. If Microsoft punts on Yahoo, there is no fallback option. MSN is #3, Ask.com / AOL fall in a very, very distant 4th and 5th. Even collectively, Ask.com and AOL are not pimples on Google's butt. Because Microsoft delayed so long in getting serious about the web, there are basically only two courses of action open to it: (a) pay an exorbitant price for Yahoo or (b) cede the web market to Google. Yang is no dummy. He knows the score and, like a smart businessman, is squeezing Ballmer's testicles.

From his end, Ballmer knows it's a tough market out there. Yang has told his shareholders that the Microsoft market is below value. Now wall street will crank up the pressure on Yang to ramp up earnings thereby justifying spurring an offer carrying a significant premium offer current market cap calculated by today's trading price. If Yang doesn't start turning earnings around, the street will punish Yahoo's stock price. There is also potential for a cascade of stockholder derivative suits against Yahoo if the stock price craters. Is Ballmer waiting on the sidelines hoping the street ratchets up pressure on Yahoo thereby improving his hand? For his sake, I hope not.

Could Ballmer's Play Backfire?
Do Catholic priests screw alterboys? Hell yes, it could backfire. So Yang has to ramp up profits. He'll be grasping at any life raft within reach. What's a quick and easy fix? Google commands a higher per click ad rate from advertisers than Yahoo. What if Yahoo moves some of it's ad traffic over to Google to avail itself of the higher ad rate? Bingo, instant kick to profits. Those talks have already heated up. My personal opinion is that Yahoo has no option left other than to partner with Google, making Google even more ginormous in the web advertising world.

Monkey Boy, don't take it personal. You really are making a foolish move by not kicking in the extra $5 billion for Yahoo. I don't care if its extortion. That's the price for Microsoft's past sin in being complacent about the web advertising market. Pay the ransom and move on.

For those wondering about Steve Ballmer's nickname of Monkey Boy, wonder no further. Here is the genesis.

Saturday, May 3, 2008

The Razor Business Model

I remember when the Gillette Mach 3 razor came out. The company mailed me, free of charge, a Gillette Mach 3 razor consisting of the handle and one Mach 3 blade. Sure enough, I liked this razor but, upon buying refills, found out the Mach 3 refill razors cost twice as much as the older twin blades. Ouch. Further, the snazzy Mach 3 handle only accepts Mach 3 blades. Gillette is more than willing to give away the more expensive Mach 3 razor handle because, over time, they'll make their money on the high profit margin blades. As an aside, here's a ball busting hilarious spoof from The Onion on the Gillette v. Schick razor wars.

Some other products, you ask, following the razor blade model? My wife and I have allergies. Target and Walmart have cheap air purifiers with herpa filters. The things work great ... for three or four months, then you need a new herpa filter. Guess what? The little flimsy replacement herpa filter costs 1/3 the price of the entire air purifier unit. And only herpa filters fit in the unit. The profit margins on these little $15 filters has to be astronomical.

I'm sure many of you out there can relate to this one. My last auto purchase was a used BMW 528i. Couldn't believe the deal I got, $15,500 for a 1999 BMW with 80,000 miles (this purchase was made three years ago). Looked at many other vehicles and this was far and away the best value. The thing looks great, drives great, but a car made during the prior millennium is going to need repairs, no? Well where does one take a BMW for repairs? I'll tell you it ain't Carl's Auto Repair down the street. No, you have to take it to either a BMW dealer (the kiss of financial death) or a certified BMW repair facility. The friendly folks at Bimmers R Us who sold me the car happen to a BMW repair facility. They may not have pocketed much on my initial purchase but, believe me, these guys have made out hansomly on the subsequent repair work. I'm convinced the repair facility is the major profit center at Bimmers R Us. To put this into the parlance of the Gillette business model: the BMW is the the razor handle and the repair services are the razor blades. All the money is in the blades.

For you entrepreneurs out there, keep the razor blade strategy in mind next time you're putting together a startup. It's a winner!