Exploring social business strategy

TechCrunch had an interesting article yesterday on Topix. The central message was that it had quietly become the “local watering hole” for small towns, as evidenced by the total comments on the site (now in the 100 M range).  It then went on to make the claim that the reason people like myself haven’t been paying attention is, of course, that you wouldn’t unless you were in one of these small towns – like Pepper Pike – that may not have a daily local newspaper or website that makes it easy to discuss local news.

The explanation seemed to make sense, but to be honest I was just a little skeptical. So I decided to try to take a look at it through the lens of my own small hometown. But it’s not on there. So instead, since the author started the article by saying how useful Topix was for news about his own hometown (Pepper Pike), I decided to take a look at the site pretending I was from there. Having done so, I’m now very, very skeptical about many of the claims in the TechCrunch story.

The first clue something was amiss, in terms of Topix being an “online watering hole”, comes from the “Pepper Pike” homepage. As I scanned through the stories listed, every single one from the last month had the word “comment” at the bottom, with a question mark following it. The reason – nobody had commented on any of them. Hmmm. Then I looked at the list of “recent Pepper Pike discussions“. There was a little more activity on this list, but it was few and far between. Notably, from March 2009 to December 2009, there were only 4 posts. Two had one comment; one had two comments; and one had 25. That doesn’t scream watering hole to me.

I did, however, notice a bit of an explosion in activity starting in February 2010. 10 posts with comments, if you exclude the TechCrunch story itself (which is on the list). Of these, two stood out – “hundreds of teens riot outside movie theater” from March 1st had 460 comments; “JCU students demand sexual orientation protection” had 178. Three more had 20+ comments, and the rest only a couple.

So I decided to check out that first one – perhaps it represented all those Pepper Pike folks who’d just been waiting for a topic to talk about. I started scanning through the comments, and noticed the vast majority of commenters were from Cleveland – hardly a small town. Trying to figure out why this was, I looked up and saw a link to the “full story” – at WJW Fox 8 Cleveland (Cleveland’s Own!). I clicked on it. I noticed the story was about Cleveland Heights, and the word “Pepper” – let alone “Pepper Pike” – wasn’t anywhere to be found. And I noticed that I could freely post a comment, under any name I wanted, right from that site, which would roll up into Topix. Conclusion – there certainly wasn’t anything local or small town driving the commenting on that story.

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Many companies have been pursuing various ways to connect their brands with charitable causes – a subset of what we call “brand as movement.” In some cases, doing so seems easy – say, a bookstore supporting literacy programs. But for many organizations, such obvious connection points do not exist, and it’s a big challenge to wade through all of the options available to them to find something that will positively impact the brand.

But there’s an interesting new trend emerging on this front. Instead of simply selecting a handful of causes to throw their money behind (and connect their brand to), more and more companies are pursuing a “microsponsorship” approach. As AdAge reported yesterday, companies like Pepsi and Bisquick allow customers to pitch their own pet projects, and those chosen receive financing as low as a few hundred dollars – though in the case of Pepsi Refresh, the grants typically range from $5,000 to $25,000.

Why I find this so interesting ties to a recurring theme on this blog – prosumerism (think producer + consumer = prosumer), where customers become actively engaged in the co-creation of value. In some cases (such as through MyStarbucksIdea), prosumers merely give ideas that the company can act on; in others (such as Lego Mindstorm) they directly innovate on top of given products and services; in still others (such as Motley Fool Caps), the prosumer community forms an entirely new value proposition all together.

In this case, prosumers come to the company with an idea for what they can do. And while they may not be doing anything for the company directly, their engagement obviously goes far beyond ideation – if they get the funding, they have to go and do what they say they’re going to do. In turn, it will be very interesting to see how this plays out – and, from a marketing perspective, what the net benefits are for companies connected to such a distributed network of “brand as movement” projects.

On a somewhat similar front, I met with the people developing WellofChange last week. What they’re doing is very interesting – providing a platform where people can volunteer their discretionary time (say, providing a golf lesson), while the recipient of said lesson pays an agreed upon price, that goes to the charity of the volunteers choice. But tied to this, they also have an enterprise version, where WellofChange acts as the platform where a particular companies employees can engage as “volunteers” – with the proceeds earned from their contributions again flowing back to the charity of their choice.

If you put the two together, it’s a very interesting twist on the “brand as movement”. Not only might companies fund prosumers to do a wide variety of charitable projects that might reflect well on the brand, but their own employees might be funding a wide variety of others as well – also reflecting well on the brand. But of course, from a marketing perspective, the long-term implications of this are a little bit hazy. If enough companies start doing one (or both), it’s hard to differentiate from the pack – and it just becomes another “cost of doing business” (though of course, good for society at large). In turn, companies that are interested in the two approaches, and are taking a long-term perspective in terms of brand building, still might want to set some parameters about exactly what types of things their prosumers (and employees) should be supporting – and why.

I spend most of my working life researching how collaborative technologies – particularly social media – are impacting business strategy. My academic background is in economics. So when The Economist does a special report on something like social networking, it always gets my attention. And as with most articles in the publication, I always find a treasure trove of interesting statements and facts to think about. Over the next little while, I’m going to be exploring a few of them here.

Today I’m going to start with something very, very simple – the statistics they provided on Facebook usage in their lead article. Specifically, each of the following three stats were presented in relation to Facebook becoming so popular:

• 350 million users
• 55 million updates a day
• 3.5 billion pieces of content shared each week

Each is unquestionably a big number, that seems to indicate popularity – but a simple calculation of per-user stats seems to be telling me a slightly different story. For example, 55 million updates a day, across 350 million users, works out to just over one update per week, per user. That doesn’t actually seem like very many – particularly given that, at least from what I have seen, there is a reasonable number of people that update their status quite regularly. Spun a different way, if 15% of people were providing one update per day, that would leave 85% never providing an update at all. I’m not exactly sure how the exact distribution plays out, but in general it appears that providing an “update” on Facebook isn’t something most Facebook users do that often – and certainly less than once a week. [Read more →]

When it comes to the Web 2.0 and the process of “creative destruction”, a lot of people associate it more with the latter word than the former. After all, we hear story after story of entire industries being washed away – and what replaces them simply doesn’t provide a livelihood for nearly as many people.

So I find it nice to think about cases where the Web 2.0 is helping businesses in way people may not have been anticipated several years ago. One such case is in relation to small restaurants (and other proverbial “Mom & Pop” shops). They might well learn that the combination of Web 2.0 and mobile devices will help them – a lot. And in the process, it could unleash a wave of creative destruction that society in general may appreciate a lot more than what many see currently taking place.

It’s not a complicated story by any means, and a simple personal story will suffice as an illustration. I eat a lot of sushi. There are tons of sushi places between my office and my house that I can go to. From experience, I know that some are good, and some are bad – but many remain unknown. And I also know from experience that outward appearances are not a particularly good indicator of which ones are which.

So, I recently popped on to Yelp on my iPhone. Within a couple of seconds I scanned through the reviews of various Sushi places. Was surprised to see one very highly rated one, which I’ve walked by numerous times thinking “I’d never go there.” Interesting tidbits in there about how it’s a family run business, and how personal the service can be. Tried it. It’s great. And I probably never would have done so otherwise.

If you extend that little example out across all kinds of local service providers, you can potentially see a beautiful process of creative destruction taking place. Most of us have heard countless story of small, independent places not surviving. Often, it’s because, no matter how great they are, they can’t get enough sustained attention to support themselves. Thanks to services like Yelp, more and more might be able to – perhaps without even spending a penny on direct advertising (i.e. what you actually do means more, how much you spend communicating that means less). Net result: the best places get rewarded, the bar is raised, and every service provider has to get better and better.

A much nicer thing to think about then (say) entire industries being washed away, non?

Last week I wrote about The Hipstery, focusing on the concept of using data to create and leverage “blind spots”. This week I’m going to talk about SeatGeek – a relatively new start-up that uses existing data to empower customers, and potentially alter the dynamics of the secondary ticket industry.

What SeatGeek does is gather information from hundreds of different secondary market sites for event tickets, and apply an algorithm to it in order to predict where prices for individual events will go. The company asserts that it is directionally correct about 80% of the time (currently limited to MLB games and music concerts). The value for customers is rather obvious here – if prices are going to go down, you wait; if they’re going to go up, you buy.

How SeatGeek itself will perform is unclear – there are a number of business model challenges and contradictions I discuss in my research paper. But there’s one particularly important long-term implication, which spans industries, that’s worthy of more attention – the role of data in regards to the customer relationships.

In many traditionally B to B to C marketplaces, the Internet (among other things) is allowing the “middle B” to solidify their hold on the customer relationship, and leverage data to become ever-more popular. The challenge for the “first B” in many industries is to gain access to that data for their own competitive advantage. There are a variety of different ways to do this that my research team is currently exploring.

In SeatGeek’s case, professional sports teams, various musicians and others are the event originators – the “first B”. Companies like TicketMaster are the “middle B”. In the long-term, it may well be that SeatGeek (or a company like them) empowers the event originators at the current intermediaries expense. I’d hypothesized we might see the same process / battle play out in, say, the book industry as the Kindle (and other such devices) grow in popularity. This morning I was reading the Economist, and I found the following quote from “a Hulu for Print” quite interesting…

Publishers are irked at the prospect of formatting content for multiple devices with slightly different requirements—a problem that will worsen. They are even more irked at the current market leader, Amazon, which returns as little as 30% of the sale price of a digital magazine to publishers and provides less detail about customers’ reading habits than they would like.

For further reading on SeatGeek on the web, I recommend this, this, and this. An interesting overview of the secondary ticket market is here.

My job as executive editor at nGenera Insight involves doing a lot of research about new business models and start-ups tied to the Web 2.0. Over the next few weeks, I’m going to be sharing a high level overview of some of the work I’ve been doing recently. Today I’m going to start by talking about the story we see emerging from a little company called The Hipstery.

The idea behind The Hipstery is simple. Instead of offering a bunch of t-shirts for customers to pick from, the company invites customers to fill in a survey. They then take these results, apply an “innovative style algorithm technology” to them, and select a t-shirt that seems to suit the customer. Think of it as a way to surprise yourself with a gift.

We’re cautious not to overstate what The Hipstery is actually doing here – the humorous tone of the site makes it appear that the algorithm might be part of a joke. But there’s no reason it need to be. We think the idea behind it points towards an interesting opportunity popping up all over the web.

Without getting into the details of the framework (which is where the Johari Window, among other things, comes in), the idea is to create “blind spot” – things you can no about your customers, but they don’t know about themselves – and capitalize on them. Doing so requires data, and analytical capability. We’ve already seen this happen in online dating – while sites like Facebook offered certain advantages over services like Match.com, it’s eHarmony that captured the blind spot opportunity (and found a business model). If you squint a bit, you can make the argument that The Hipstery model is to Threadless in the clothing industry what eHarmony is to Facebook in online dating.

There’s of course much more to the story than that. But the overall message is that The Hipstery is a very interesting company to check out, and many organizations should consider looking for their own “blind spot” opportunities to exploit.

Very early in my career, I was told there are very few new ideas out there – if you’ve thought of it, somebody else probably has as well. What’s rare is for people to actually do something with the idea. So I find it quite amusing when I see people get all upset about somebody “stealing” there idea, when “stealing” is defined as “I wrote / blogged / tweeted about this once, and person or company X has clearly stolen based on all of these things they did which I already thought of.” In some cases, admittedly, the complaint is valid – but in my opinion most are not.

I was reminded of this when I stumbled upon StickK today. I’m always fascinated by online business models where making people pay for something creates a better experience for them than offering it for free. I’ve seen these properties in dating sites, job searches, and a variety of others. Then I got to thinking about how many people have goals they want to acheive, but need an incentive to actually follow through. In turn, what if you set-up a service where people voluntarily offered to cough up some of their money if they failed to achieve a goal they set for themselves? And what if you had most of that money going to charity, so they’d actually not feel that bad about it.

That seems to be exactly what StickK is. I know they didn’t steal it from me – notably because the site started before I’d ever thought of it, and I can’t remember if I ever wrote about the idea anywhere anyway. But even if I had wrote about it, and the company emerged after that, AND I could make a compelling case that my ideas drove the whole thing (again, that’s clearly not the case), I wouldn’t be upset about it anyway. I would have thought “hey, I shared my thought – good for them putting it into action.” And I’d realize that there were probably many, many other people that had thought about it before.

Of course, then when I went to the site, I realized I wouldn’t ACTUALLY pull the trigger on taking part. Anyone have any thoughts on whether this idea is a good one – and how the site is doing?

I do research for a living. A lot of it tends to centre on the Web 2.0. And the Chairman of my research group wrote Wikinomics. So I spend quite a bit of time out looking for new companies and business models, with a particularly keen eye for things that are “opening up”. But to be honest, there are quite a few situations where it becomes obvious that being open isn’t always a great thing.

For example, one easy technique for locating new “lighthouse case study” ideas is searching through various contests that are floating around out there. Two of the more well-publicized ones recently are the TechCrunch 50, and the Mashable Open Web Awards. The first provides a nice list of start-ups to consider, and the various stories swirling around them point to many more. Great resource. I also had high hopes for the Mashable Open Web awards as a pointer towards great case studies. But thus far have been mostly disappointed.

The reason is that I suspect the system is being gamed, and I don’t know what to make of many of the results I’ve seen. For example, I was really interested in “Twitter user of the year”, particularly since there are many, many interesting Twitter users out there. I watched the updating list for a few hours last week. @ivetesangelo proved quite popular. In fact, my rough count indicated @ivetesangelo was getting about 60% of the votes. @sookiebontemps and @tommcfly were also quite popular. I greatly suspect that the system was being gamed. I scanned through a variety of other lists, saw voting patterns that defied all logic (at least in relation to what the contest intended), and moved on.

In some ways it’s not really fair to compare the two directly – but since both are seeking to identify the “best” in a relatively similar space, I think the difference between the two experiences is important. By applying some structure, expertise, and filtering, TechCrunch provides a lot of value to me; by being almost entirely open, the Mashable Web Awards are left open to gaming, and various different interpretations of what’s going on. I have a hunch of some expert panel had narrowed down a list of the best things going on out there (perhaps guided by voter input) and let people work from there, the output would be more interesting – and useful.

I see this kind of thing pop up a lot. In general, I find open to be good – to a point. But there’s a reason things like hierarchies emerged out of self-organizing systems.

In most cases, getting something for free is preferable to paying for it. But now always. One example I’ve always found intriguing on this front is online dating sites. If you’re (say) a very attractive female, it’s HIGHLY likely that you will be inundated with messages from potential suitors. But by making the suitors pay to send messages, not only is the experience better for the person receiving the messages (less noise), it’s also better for the people that really want to ask her out (and have a chance). And importantly, a real business model is born.

With that in mind, think about most online job sites. The way most operate is to (in relation to the above example)  make the very attractive female pay to post her ad, while allowing any suitor to send her “applications” for free. It sounds rather absurd when you think about it that way, but that’s exactly how most work.

LocalBacon is a new job-search site (profiled at the TechCrunch 50 conference) that’s trying to do it the other way around. Employers can post jobs for free, and applicants must pay something to apply. Now there are a lot of wrinkles to iron out around pricing, and various other interesting features that might be worthy of discussion, but I just want to focus on the simplicity of the general idea. Stop making one customer pay, make the other customer pay, and increase the value for both parties… while perhaps creating a sustainable business model in the process.Nice.

Would love to hear examples of other businesses / industries such an approach could work in…

On Monday my colleague Naumi Haque sent me a link to an interesting article by Professor Francis Heylighen titled “Why is Open Access Development is so successful? Stigmergic organization and the economics of information“. It provides a great overview of open access / self-organizing systems in relation to traditional economic theory, but the part I found most interesting was in relation to the two different types of stigmergy.

I will now admit that I didn’t actually know what that word meant before reading the article. According to Wikipedia, “Stigmergy is a form of self-organization. It produces complex, apparently intelligent structures, without need for any planning, control, or even communication between the agents. As such it supports efficient collaboration between extremely simple agents, who lack any memory, intelligence or even awareness of each other.” More simply, Heylighen says “a process is stigmergic if the work done by one agent provides a stimulus that entices other agents to continue the job.”

You can start seeing the link between stigmergy, community building, and social media from that description. But to highlight the difference between direct and indirect stigmergy, Heylighen used termite and ant examples.

Direct stigmergy: exemplified by termite hill-building, it is the “work-in-progress” itself that directs subsequent contributions.

Indirect stigmergy: exemplified by the way ants create trails of pheremones that direct other ants to food sources. The trails are left as “side effects” of the actual work being performed.

I thought about these differences, and how they might relate to companies in terms of community building and social media strategies. It occurred to me that building a community is primarily driven by direct stigmergy, while the use of social media is the indirect stigmergy that draws people to you.

The reason is simple. In the termite (direct) example, the little critters go around dropping bits of mud randomly, and where the heaps are formed stimulate other termites to add to them – causing them to grow and grow. By definition, the termite can’t add to the heap without being there. So while no centrally controlled plan is needed, the community must already be there. In an organizational context, the company /moderators start by dropping little heaps of information here and there, hopefully others do to, and where the heaps “pile up” emerge as the key focal point.

The challenge (from an organization context) is, obviously, that this approach doesn’t work if you don’t have a critical mass of termites. You can drop all the heaps you want, but if no one else is there, they’re not going to grow. This is where the indirect stigmergy / social media tie comes in. Using platforms like Facebook, Twitter, WordPress, etc., organizations (and early contributors) leave “trails” that direct people back to the (in the ant case) the “food source”.

So it’s obviously a little bit awkward trying to elegantly merge the termite and ant examples together – right now I’d end up with a bunch of ants piling in to eat the Termite hills. But if you squint a bit I think you’ll see what I’m saying. Organizations need to think about direct stigmergy principles in order to build up their own community from within, and indirect stigmergy principles in order to draw people to them. It’s a subtle, but important, distinction.