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Beyond the Jargon

The story of cloud computing isn’t about technology; its about massive economies of scale leading to significant bottom-line business benefits.

Information technology continues to be a primary driver and enabler of business strategy for most organizations. Personal productivity solutions empower workers, forecasting tools provide manager’s with an unprecedented level of business insight, and data mining techniques allow for vast improvements to customer service and retention. According to the US Bureau of Economic Analysis, annual IT spending has skyrocketed from approximately $5 billion in annual spending in 1970 to nearly $350 billion in 2008.

Despite both the magnitude of this investment and the wide-reaching impact technology has had on profitability and productivity executives outside the IT department continue to view long-term technology strategy as outside their domain. Often, this is no more than a communication issue; these conversations tend to be so laden with ‘tech talk’ that business managers perceive them irrelevant to their own goals. However, given that long-term economic potential, rather than the nuances of implementation, determines the value of a given technology to the business, these managers would do well to insert themselves in such discussions.

To understand the role return on investment plays in helping a new technology to reach critical mass, let’s consider the evolution of e-commerce.

In 1997, a poll from USA Today revealed that 95% of Americans were unwilling to give out their credit card details online. Thirteen years later, comScore reports the highest ever online spending on a single day; nine million online buyers spent over $1 billion on Cyber Monday. It begs to question: how did a mere thirteen years bring about such a dramatic change in events?

The answer lies in the economics of e-commerce. For consumers, online shopping ultimately offered a combination of convenience, pricing and availability that was compelling enough to overcome their security concerns. The opportunity was better still for merchants, who invested considerably in improving the online buying experience and received the benefits of reduced staffing and equipment needs, or the elimination of  commercial space entirely. Selling online represents a huge cost savings over operating a physical store. With geography a lesser issue, businesses saw tremendous growth in their potential reach – suddenly anyone with an Internet connection had become a potential customer.

Of course, the online shopping industry did not flourish overnight. In the early days, merchants faced hurdles in developing secure payment programs, software glitches and unplanned downtime. Because e-commerce was a disruptive innovation, in that it involves radical changes to business as usual, the retail industry has undoubtedly experienced some growing pains in accommodating its rapid growth. Unsurprisingly, all retailers did not fare equally. Early adopters, such as Amazon, eBay, Nordstrom and Intel, benefited tremendously from the new business model’s success.Conversely, firms arriving late to the game found it challenging to catch up to the robust web presence their competitors had already established.

The story of e-commerce echoes in the evolution of cloud computing – hosted, web-based applications built on shared infrastructure.

Much like online shopping, cloud based services are growing incredibly quickly, and will succeed not because of the nuances of their technology, but rather, as a result of the ability to deliver exponential gains to a business’s bottom line. The way firms manage the shift from client-server to cloud computing today will have significant influence on their cost structure, performance and scalability for years to come—creating sustainable competitive advantage for some, while holding others back.

It is said that the pace of technology adoption typically occurs in an S-curve. This means few firms adopt at the beginning or end of the cycle; most chose to fall somewhere in the middle. While adopting too early can be risky, the curve’s inflection point, in which a next-generation technology has just reached critical mass, is considered the ‘sweet spot’ for adoption, as it enables companies to get a leg up on their competition without worrying that they are investing in a technology that is fast-becoming obsolete.

Cloud computing has reached this inflection point. According to IDC Chief Analyst Frank Gens, 2011 is the year we can expect cloud computing to “make the critical transition from early adopter status to early mainstream adoption” and we can anticipate that it will remain “the dominant technology platform for the next 20 years”. As further evidence that cloud services are here to stay, IDG Research Services reports that 75% of firms plan to be using enterprise-grade cloud computing solutions within the next five years.

Despite the conspicuous signs of imminent change, many non-IT executives are still wondering how cloud computing will revolutionize their business, and more fundamentally, what the term means altogether.

This is hardly their fault. After all, cloud computing’s definition is murky at best. Inspired by the cloud symbol that’s often used to represent the Internet in flowcharts and diagrams, the term has morphed into an overused and misunderstood technology buzzword. Michael Coté of Red Monk, a self-proclaimed “cloudnut”, has described cloud computing “a sort of silly-putty… that you can jam into any hole or problem.”

To provide a bit more context, we are in the midst of a transition from client-server to cloud computing that constitutes a change in the way a company’s information is stored. The client-server model involves management data on a physical machine, whereas with cloud computing, data is hosted in the ‘cloud’ (aka the Internet). In contrast to the traditional hosting model, cloud services are sold on demand, typically by the minute or the hour; are elastic — a user can have as much or as little of a service as they want at any given time; and the service is fully managed by the provider.

Moving beyond the tech jargon, business leaders need to understand that these services operate based on massive economies of scale and will deliver significant benefits to their businesses – both in short and long term.

By switching to a cloud based solution, most companies will experience cost-efficiencies almost immediately as the on demand, elastic services managed by provide typically provide businesses with significant reductions in the cost of web hosting. Similarly, by providing employees with an array of tools for doing their jobs more efficiently, remote access to corporate resources, and enhanced business intelligence, firms can expect their workforce to quickly demonstrate increased productivity.

At its core, cloud computing is about a business’s future and keeping pace with modern business practices.  To this end, many firms will find that the aspects of cloud services that facilitate collaboration and the sharing of ideas across working groups help them to develop a culture of innovation. Further, implementing cloud-based solutions drastically improves a company’s agility and ability to respond quickly to business challenges. Additionally, because cloud-based providers operate at scale, they can often afford to invest considerably in security and network reliability. This means that for firms whose needs have outgrown the capabilities of their internal legacy data centers, early data migration can prevent costly incidents such as security breaches or unplanned network downtime.

As we saw with the rapid rise of e-commerce, technology with a strong business value proposition will accelerate at a fervent pace. Given both the myriad of advantages cloud hosting offers over its desktop counterpart and the economic value it drives for the businesses who embrace it, we can anticipate that the pace of its adoption will rival even that of online shopping. As a result, managers with an eye on the bottom line ought not to be content to watch early adopters as they stumble, or leave the decision making to their colleagues in IT. If they choose do so, they may find that rather than mitigating risk, they are in fact inviting it by allowing their businesses to fall behind the competition.

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The Revenge of the Nerds: SXSW Highlights Changes in Media Hierarchy

With attendance at South By Southwest Interactive estimated to have increased by as much as 40% this year,  the interactive portion of the festival seems to be usurping a center stage at a show that initially began in 1987 with a sole focus on music. This year, according to event organizers, the number of badges purchased for the SXSW Interactive Festival surpassed those purchased for the music portion of the event.

Of course, attendance rates at this particular festival are merely a microcosm of the shift in media dominance; interactive media is gaining significant clout in the broader Industry. The attendees of the SXSW Interactive, who arrive via  ’nerd birds’ and affectionately refer to the festival as ‘spring break for geeks’, have become the ruling caste of an Industry that has historically been controlled by the likes of musicians, actors, media conglomerates and other ‘cool kids’.

The triumph of the ‘nerds’ in the battle for media power is reminiscent  of the 1984 film, The Revenge of the Nerds, in which a group of ‘nerds’ moves up their university’s social hierarchy by outsmarting the school’s highest echelon of command, the ‘alpha betas’. Upon understanding that power is contingent upon taking control of the ‘Greek Council’ the ‘nerds’ band together and use their combined wits to overtake an organization that was traditionally dominated by the ‘alpha betas’ (aka the University jocks).

Much like the ‘nerds’ featured in the 1984 comedy, today’s ‘nerds’ banded together and used their collective intellectual prowess to become dominant forces in a playing field that had historically belonged to the ‘cool kids’. In understanding that the essence of media power lies in audience appeal, interactive leaders were able to re-engineer the concept of mass communication in such a way that the audience with whom they sought to find favor was sure to embrace. Unlike traditional media, in which the vast majority of of people were relegated to the role of voyagers, interactive media offered a drastically different value proposition in which any member of society could become a producer or creator of media.

Quite simply, interactive media changed the game by making the audience infinitely more relevant.

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Deconstructing the American Fairytale

The concept of the American Dream, first espoused by James Truslow Adams in 1931, defined the dream as “a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement “.

The term morphed into a symbol of American opportunity and the possibilities that awaited all those willing to pursue success in the region. For Americans, torn between the democratic ideals of equality and the pursuit of independent wealth, the American Dream was irresistible in its allure – it allowed them to have their cake and eat it too.

It’s funny, but people often group capitalism and democracy together; while they do in fact have a symbiotic relationship, they are actually on two opposite sides of a spectrum. Capitalism is the freedom for an individual to pursue his or her own dreams, while democracy enables the majority to restrict that freedom.

Today, in the effort to have our cake and eat it too, or in some cases, fight bitterly on how to manage the cake, we are missing a key point – it is not only unquestionably the case that we need a balance of imperfect democracy and imperfect capitalism – but the current balance is creating tremendous deadweight loss. We are overly democratic in our willingness to hand out entitlements and raise taxes on businesses, and far too libertarian in our lack of oversight in the financial sphere.

Both increases in taxes and increases in government spending have a strong negative effect on private investment and spending.

Recent works by Gregory Mankiw and Martin Feldstein at Harvard indicate that the total cost to the economy of an additional $1 of tax for the government to spend can be as high as $5 and is almost always at least $2 – in other words, direct government spending may not be the most efficient way of accomplishing goals.

Alberto Alesina and Silvia Ardagna, also from Harvard, recently completed a comprehensive  analysis of the issue. Looking at large changes in fiscal policy in OECD nations since 1970, they compared the policy interventions that resulted in growth with those that did not.

The results indicated that successful stimulus is contingent on cuts in business and income taxes -increases in government spending are far less effective.

The human animal, like all other animals, is controlled by its wants and desires. Because the human is the animal with the greatest level of sentience, he or she can be motivated by longer term desires or fears – particularly when shorter term needs like food or shelter have been met.

And, humans have proven their ability to act in pursuit of the accumulation of wealth – at times even when it conflicts with their short-term desires. However, their behavior behavior is based on a combination of the perception of the risk, cost and potential payout of the activity, along with their unique tolerance for risk.

When the government adds additional entitlements for the unemployed, state and federal taxes for businesses will typically increase – reducing labor supply. Firms experience a higher cost of adding an additional employee and see lower benefits of the gains in productivity that stem from that employees work.

On the demand side, workers are less eager to join the workforce when the marginal gains of working relative to collecting government employment are low.

Additionally, among those that have been unemployed for a significant time period, there is a much greater number of people who simply stop trying. Today the “official” unemployment rate in the US, which looks only at those unemployed who have attempted to seek employment in the past 4 weeks, is at slightly over 10%, while the the real unemployed workforce actually stands at over 17%.

Greater Democratic Oversight of Regulators in Financial Markets is Needed

In contrast to the creation of entitlements and growth of taxes, our focus on libertarian ideals has lead to poor regulation of financial markets in which public interests are underrepresented in an imperfect market where investment information is tightly concentrated among a small number of large investors.

With the exception of the independent regulator – who has little incentive to act in the interest of the public rather than large investors – few policies challenge the influence and power to distort that larger investors are afforded under independent regulatory systems.

Nicholas Dorn, Professor of International Safety and Governance at the Erasmus School of Law, argues that “networking between regulators and those they regulate results in a convergence of global regulatory thinking. This creates groupthink, common blind spots, and deepens systemic risk.”.

In other words, a lack of outside input can lead to missed risks and a tendency for chameleon-like behavior. Poor regulation offers individual regulators excessive temptation – in terms of both financial reward and desire for peer approval – to go along with the crowd.

Diversity in thinking – and greater accountability to public interest – could be achieved by democratic steering of regulatory agencies in order to ensure that public interests were indeed met and blind spots were reexamined by those outside the field.

Abandoning the Goal of the Impossible will Allow Policy Makers to Better Optimize the Imperfect

Karl Marx understood that perfect capitalism would lead to anarchy; he missed that a perfect democracy (aka communism) would accomplish exactly the same result. Both would erode the hope of greater economic gains for the vast majority of people. And, it is the individualistic quest to accomplish greater things – not the collective desire to remain on equal footing with one’s neighbor – that is most effective in enabling the government to have any measure of control whatsoever.

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DMV-ization of America

No question about it – we need a government, a police force, an army – but whenever possible, I believe in keeping  things in the private sector.  Looking at health care specifically, there are a number of structural challenges that make a public option significantly higher in its potential to harm than help:

The Danger Of The Government Becoming the Monopoly of Last Resort:
We have anti-trust laws to promote far competition, maximize economic growth and improve consumer offerings through choice. Allowing the government a huge role in the healthcare system is incredibly dangerous. While the government will essentially be creating a monopoly through a combination of legislation and their infinite ability to borrow funds – they also own anti-trust law – allowing for an incredible opportunity to manipulate legislation put in place to help small businesses and consumers.

Stifling Innovation and Quality of Care:
Innovation is a key driver of our economy – and central to the US regaining its global stature and recovering from the current economic meltdown. Competition and innovation are inexorably linked – you don’t see innovation at the DMV because it has nothing to lose or gain – it owns the market. Customer service and competition go hand in hand as well; hours of waiting to get a new license is quite annoying – but its nothing compared to hours of waiting during a health emergency.

Diseconomies of Scale:
At a certain size, a business grows too large to manage efficiently; for example it costs about $314,000 in capital for the private economy to create a job versus about $1.2 million per job created as a result of stimulus spending.

The Size of Our Current Public Debt:
Our public debt already amounts to nearly $40,000 for every living American – or $160,000 per family. And the price tag is quickly rising – given that the government is continuing to spend funds that they don’t have, in order to decelerate the rate of rapidly rising taxes for future generations, government funds must start going to projects that focus on collaboration with the private sector in order to reduce their incremental investment. It also allows the private and public sectors to share the risk and profit – this leads to greater incentives to make programs successful.

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Intangible Insights


As we prepare to close out the first decade of the twenty-first century, intangible assets – such as intellectual property, patents, brand value, and access to customer data – are increasingly replacing physical ones as dominant drivers of value creation in a knowledge-based economy.

To illustrate how these changes have impacted the valuation of a firm’s book value relative to its market value, Baruch Lev, an accounting professor at New York University’s Stern School of Business, analyzed the gap between the two valuations over the period between 1978 and 1998. He discovered that while in 1978, market and book values were near equal, with book value representing just 95% of market value, twenty years later, book value accounted for a mere 28% of market value.

Yet, despite the increasing disparity between book and market valuations, historical growth rates, derived from previous financial statements, are often looked at as a predictor of future growth rates. Financial statements are used to derive many of the assumptions that investors rely upon as well as the performance indicators that executives are held accountable for meeting.

This occurs – at least in part – because there is painfully little guidance provided to help investors or executives compare hard numbers to soft ones.  Seeking benchmarks is an instinctual component of decision making and numbers are the easiest and most broadly agreed upon inputs used in setting benchmarks.

In the future, competitive advantage in both corporate strategy and investor decision making will likely come from a more broad based and holistic understanding of growth drivers in business segments – broken out by some combination of sector, business model and relative maturity of a firm. Additionally, there is likely a need to itemize non-tangible variables – as we currently do with tangible variables – in order to better assess the relative weight of various variables on a company’s future performance.

Such an exercise will also help with normalizing quantitative and qualitative growth drivers and enable a more accurate analysis of how internal, external, and competitive activity influence a given firm’s performance.

Until such time, as many investors struggle to incorporate intangibles into historical models, the most savvy of them will find that a focus on the intangibles is a key driver of long-term equity – particularly when they are afforded early insight in a market that is rife with ignorance.

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The Party May not Be Over, But the Guests are Sobering Up

After 15 years of steady growth accompanied by low and stable levels of price inflation, the recession delivered a real shock to the American consumer.

From 1995 to 2005, incomes and asset values grew significantly faster than inflation and real disposable incomes increased by a third in the United States, new appetites emerged, and markets sprang up to serve them.

Consumers could afford to be curious about gadgets and technology, spend on new experiences, indulge themselves with latest luxury products, and, of course,  proudly participate in socially conscious consumption.

However, this all changed in 2008, with the Lehman collapse serving as a clear indication to the nation that denial was no longer a possibility.

Consumers: Bloated and Hungover

Distrustful of Businesses and Government: The financial crisis has put a spotlight on corporate governance and consumers have become far more comfortable trusting peer reviews on websites or social networks than corporate messaging.

Distrust impacts the buying cycle as consumers’ hunger for information makes them research everything – they want to know whether a toy is safe, whether a shampoo is really unscented and whether a diaper manufacturer is environmentally responsible.

Dropping Conspicuous Consumption for Cautious Consumption: Even those who don’t need to economize are pursuing a more wholesome and less wasteful life. In fact, affluent shoppers are relentless in their hunt for good bargains and, in many cases, are more aggressive and resourceful than moderate-income consumers in this pursuit.

Even ‘green’ is suspect, as times get tough, we see that by and large, consumers are forgoing pricey green products and instead are cheaply and discreetly reducing waste.

Demanding Simplicity: Downturns are stressful and typically increase people’s desire for simplicity. Even prior to this recession, many consumers were feeling overwhelmed by the profusion of choices and 24/7 connectivity and were starting to simplify.

Mercurial Consumption Patterns: Easy access to information and friction-free purchasing is making consumers ever more agile—and less loyal. They are researching more and considering purchases longer before buying. They buy less – and when they spend – they focus on value.

Shoppers are broadening and deepening their use of retail websites: reading customer reviews, watching online product videos and paying attention to personalized product recommendations to a higher degree than ever before.

“The decline in brand loyalty is related to the rise in information shopping.” —E. Kinney Zalesne, senior consultant, Penn, Schoen & Berland Associates, March 2009

Retailers: Selling to the Sober Consumer is Not Easy

Changes are Happening Too Fast for Retailers to Keep Up: From social media to technology and web site investments, Retailers have to understand an entirely new landscape, prioritize and invest appropriately – for smaller retailers, this is especially painful.

The economy only exacerbates the challenge as short term pressures make developing a long term strategy that much more difficult.

Marketing Spend is Under a Microscope: Some 30% of surveyed retailers told Internet Retailer that they would decrease spending on paid search. Retailers are more likely now to eliminate paid search terms that do not produce enough clicks, and they are avoiding expensive brand terms by purchasing long-tail terms that result in fewer but more-profitable clicks.

The recession is leading online retailers to optimize their search engine marketing programs. SEO for organic search is a beneficiary of this trend. Some 55.3% of respondents to a March 2009 Internet Retailer survey said they planned to increase spending on SEO, compared with only 24.2% who expected to spend more on paid search.

Differentiation Beyond Pricing is Still A Challenge: Even in a recession, Web retailers must work on building a superior shopping experience. Despite the cutback mentality, smart online retailers are stepping up their efforts to provide independent-minded customers with the rich product information they are seeking. The market is too saturated for retailers to afford to solely compete by engaging in price wars and still remain profitable.

Competition Heats Up Between Multi-Channel and Pureplay Retailers: On one hand, the current economic upheaval has weakened traditional retailers, putting consumers’ wallets up for grabs. Online retailers that can fill the void through superior customer service, rich product information and greater shopping conveniences have a chance to win new customers for life.

Conversely, realizing the strong ROI of online/digital marketing, traditional retailers are increasingly encroaching on what pureplay retailers see as their territory. As large superstores bring more budget online, they will make it harder for pureplays to be successful.

When the Hangover Subsides: Retail Post-Recession
A new thriftiness and desire for simplicity will combine with pent-up demand to shape the new economy.

Catering to Consumers New Buying Habits: Consumers will still be able to buy chic brand names, but at a wider range of prices. Look for more mid-priced merchandise + “affordable Luxury”. Retailers will sell fewer brands – appealing to consumers desire for simplicity.

Seasonal transitions for apparel will probably have shorter lead times. With strapped consumers buying only what they need when they need it, it has occurred to retailers that selling swimsuits to New Yorkers in early March is not necessarily a winning strategy.

Many of the new information seeking behaviots shoppers have picked up will stick and sites will create new online shopping tools with powerful capabilities for finding, filtering and evaluating products.

Retailers will increasingly realize the potential of social networks, blogs and other social media in providing forums for consumers to share information about products and brands, and learn how to use the social web to grow more successful.

The best retailers will emerge leaner and stronger than before; others may wind up dropping out of the game: Retailers who are not the lowest price competitor will find ways to innovate and differentiate – or lose profitably entirely.

Consumers will also see even more of the exclusive collaborations between retailers and prominent designers that are so prevalent today. That will help distinguish stores as well as avoid price wars because the same items will not be sold at multiple chains.

As the idea of “constant innovation” finds its way to retail, creating a continually refreshed customer experience will become a new (and likely one of the most important) core competency for retailers.

Greater Convergence across channels: Market data show remarkable growth in cross-channel shopping. Consumers are increasingly using two or more points of contact with the retailer to discover, research, evaluate, purchase, service, and perhaps return a product:

A recent report from Forrester Research estimates that cross-channel shopping in the US will grow from 20 percent of sales in 2007 to 38 percent in 2012. During the same time, online-only sales are expected to increase more than 13 percent annually, while cross-channel sales should enjoy a stronger 17 percent annual growth rate, according to Forrester. That means by 2012 nearly 50 percent of transactions are expected to be executed with the consumer crossing channels.

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The Influencial Investor

I just read a great article on the role of the massive fall in investor confidence on the current economic crisis. The article discusses the ways in which the quantitative models for risk developed by financial engineers failed to account for the liquidity risk generated by widespread investor panic following the initial bail out in October of 2008.

Financial contagion has often been discussed in relation to investment in emerging nations; countries increase their willingness to invest when they see other nations doing so and withdraw funding based on the actions of other nations. However, it is quickly becoming clear that similar behavior can occur on a more micro-sphere as investors use their peers as benchmarks in making decisions about where to focus their investment.

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Economics of Abundance

Economics of Abundance

In a now famous October 2004 article, Chris Anderson tells Wired readers that the future of entertainment is in “millions of niche hits at the shallow end of the bitstream”.

To demonstrate this, Anderson uses the example of Rhapsody’s “power law” demand curve, which looks like that of many record stores in its concentrated distribution of top tracks with a quick drop off in demand for less popular ones. Yet, it differs in that demand never reaches zero.

Anderson argues that demand is typically highly concentrated because many individuals lack ample information about products that fall outside the mainstream which causes them to wind up sticking with what they know in order to play it safe – a phenomenon he dubs the ”economics of scarcity”.

One obvious issue with that particular example is that Rhapsody is an unlimited subscription based music service;  like in the case of an-all-you-can-eat buffet, it offers a low risk opportunity to try new things. Penetration of niche products and services is likely to be highest in markets that not only create economies of scale for merchants in distribution costs, but also, provide low risks to the user in trying out unknown items.

Yet, even in the case of when a user can try additional incremental goods at no charge , a is a certain number of free options that will render additional free goods useless. Similarly, adding additional suppliers to a market where demand is both perfect and unwavering, creates a situation in which the net excess remains unsold.

The widespread belief that online demand could be a never-ending power law demonstrated the extent that the unprecedented demand for online goods accelerated – particularly when considered in relation to the traction traditional businesses had made in following their customers online.Opportunity in the e-commerce industry appeared to be near infinite. Yet, in reality, the laws of supply and demand have not changed.

Addressable demand for niche items just initially expanded faster than supply as low distribution costs led to exponential growth in the size of the addressable market. Given that the opportunity to serve the niche markets sprung up rapidly, early visionaries were rewarded with more demand then they could manage to serve and the new “economics of abundance” enabled consumers to expand their purchase comfort zones. In due time, the opportunity to enjoy increasingly personalized and rare items will become another baseline expectation for consumers, butit remains unclear whether increased choices will make consumers happy, help businesses grow or merely serve to distract both groups.

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Turning Virtual Users into Real Profits

In 2008, 41% of US Internet users visited social network sites monthly – an 11% increase from 2007. Yet marketers were unimpressed;75% budgeted less than $100,000 on social media spending this year. If social networks wish to turn virtual users into real profits, they must first help marketers understand how their audience maps to market segments.

The number of people who visit social networks on a weekly or daily basis is growing and the amount of time spent on these sites in the first nine months of 2008 grew at double the rate of overall time spent on the Internet.

Not only is social networking usage accelerating rapidly, but the channel accrues further benefits as growth begets growth; he more “connections” a user has on a given network, the greater their motivation to join that network or sign on to check status updates. In fact, in its annual “State of the Media Democracy” study, Deloitte found that 55% of social network users logged into social networks at least weekly in 2008 – an 18% increase from two years prior.

While teens and young adults continue to make up the largest group of social network users today, new growth is also coming from older generations. It is estimated that there will be 44% more social network users in 2013 than there were in 2008. The change in demographics is already beginning to have a profound impact on the expansion of the medium’s scope.

With 1382% growth in the past year, Twitter is expanding social networking beyond a tool for socializing and is an excellent example of this phenomenon. With 45-to-54-year-olds representing the site’s highest indexing age group, the site’s current adopters are actually led by older users – which is atypical for a social network.

Unlike Facebook or MySpace, which focus on creating profiles and interacting with friends online, Twitter’s steady stream of digital sound bites renders it an optimal tool for sharing and spreading information. This suggests that as social networking expands into the mainstream, its usage patterns may undergo considerable alterations.

For businesses looking to map social media users to their existing market segments, there is tremendous potential in users’ increased interest in using social networks to engage their passions and interests, rather than solely as platform for developing new relationships or keeping up with existing ones.

One benefit of this is that users who come together on the basis of shared interests naturally constitute a targeted audience, thereby allowing marketers to position and craft messaging based on their needs. Engagement also tends to be higher when audiences share similar interests; a recent study of Vertical Ad Networks demonstrated that vertical audiences generated 60% higher engagement than average category users.

As an added value proposition,Twitter’s micro-blogging focused site tends to appeal to users who are frustrated by information overload and seeking relevancy in short bursts. It can be a powerful and dynamic social influence tool – reaching precisely those consumers who typically tune out marketing messages.

While profiles, updates, and posts contain volumes of data about consumers’ likes, dislikes, and purchase intent, marketers find this information nearly impossible to track and capture. To help businesses overcome the steep learning curve, effective social analytics could offer robust audience segmentation that groups users into “clusters” based on their demographics and/or affinities and takes into account the strength of their connections to other users who share similar characteristics.

Clusters, or diverse consumer communities differentiated by ethnicity, wealth, lifestyle, and values, are an ideal environment to search for influencers: those individuals who possess the ability to have a profound influence on others in the group. In a small community of like-minded individuals, influencers tend to have exceptional success in building trust and affecting the perceptions of group members.

As a result, they are extremely valuable commodities for marketers looking to reach a particular audience as they help to promote the creation of viral marketing programs that are dramatically more effective than conventional marketing strategies in expanding brand awareness and consumer engagement. And, ultimately, businesses will be drawn to social networks for precisely this reason – such networks possess power to spread ideas within a group and make them stick.


eMarketer, February 2009; “Five Consumer Trends for 2009″, Debra Williamson.

Forrester Research, March 2009; “Social Media Playtime is Over”, Jeremiah Owyang.

.comScore Media Metrix

Deloitte’s “State of the Media Democracy Survey”, January 2009

eMarketer, February 2009; “Five Consumer Trends for 2009″, Debra Williamson.

Nielsen Online, March 2009

comScore Study Highlights Rapid Emergence of Vertical Ad Networks for Reaching Engaged, Targeted Audiences; April 2009

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A Self-Defeating Presidency

In economics, the term, “sticky” means resistant to change. During a recession, employment tends to be “sticky downward”  in that, while many firms, during the recession, lay off workers, the same companies are often reluctant to begin hiring again even as things improve.  The result can lead to weak job growth during the recovery and even slow the rate at which things improve.

The trouble is that even as things get better in actuality, it takes businesses a bit longer to recover psychologically. Their confidence has been delivered a blow, and once lost, confidence can be very hard to regain.  Since firms continue to feel poorer with wages and job growth not matching overall growth, we see longer than necessary levels of unemployment, along with inflation, as salaries, likely sticky downward as well, grow at a slower rate than the prices of goods. Quite unfortunately, this lack of confidence makes a bad situation worse, slowing recovery and making it significantly more painful.

During his campaign, it served Obama well as a candidate to paint a picture of a grave economy. After all, one of the strongest areas of his campaign, particularly for winning the votes of undecided independents, was his commitment to economic change. To highlight his own selling point, it was necessary to for Obama to employ fear, and create a narrative in which the Republicans single-handy destroyed our economy , and their candidate for President, John McCain, was naive and out of touch, even going so far as to call our economic fundamentals “sound” as late as September 2008. Implicit in that narrative was that as a nation, unless we elected Barack Obama into office, we were, in no uncertain terms, doomed.

While he won the election, Obama may not have done himself, or the nation, any favors. Despite Obama’s attempts to infuse additional hope into his messaging once he took office, the influence of his campaign rhetoric on public perception can not be easily undone. While the public may not have a clear understanding of how to fix the economic recession, they are growing increasingly displeased with Obama’s attempts.

Pessimism in the nation’s direction has risen sharply this past summer. A recent Washington Post-ABC News poll indicates that 55% of citizens see things as pretty seriously on the wrong track -  up from 48% from April.  And, similiarly, while sixty percent of people had faith in Obama’s ability to spearhead the initiatives necessary to end the economic recession when he took office, that number is down to 49% today.

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Posted in Economics, Politics. Tagged with , , , , .

A “Smarter” Smartphone

With the global economic recession reducing the demand for mobile handsets, smartphones shine as the single bright spot in an otherwise depressed market. As a result, industry stakeholders become increasingly invested in their success.

While new consumer-oriented handsets have expanded the appeal of smartphones beyond the corporate world, mobile internet usage has not yet become mainstream; the high prices of both handsets and data plans remain considerable barriers to penetration. To improve affordability without destroying profit margins, individual stakeholders in the mobile value chain need to work collectively to generate economies of scale and reduce operational costs.

Smartphone Growth Bucks Industry Trends:

The demand for mobile phones saw a 9.4% year on year decline in the first quarter of 2009 – the steepest contraction in demand since Gartner initially began tracking the market. However, with sales increasing by 12.7 percent in the same period, smartphones are clearly defying industry trends[1].

Breaking down smartphone sales by manufacturer, both Apple and Research in Motion (RIM) saw significant gains in market share at the expense of Nokia, the current market leader. A strong first quarter performance for these two companies indicates that as smartphones increase their presence in consumer markets, mobile applications and services have become increasingly integral to the mobile experience, and users are willing to invest in costly handsets and data plans in order to enjoy their benefits.

The Handset Market Has Grown Increasingly Polarized:

Given the popularity of high-end handsets and slow sales in the mid-market, Ovum, a global advisory and consulting firm, has found that the mid-tier handset segment has been hit hardest by the economic downturn.  The dissolving middle-market has left vendors and mobile operators focusing on two types of handsets — the low-end and high-end segments. [2]

High-end smartphones have become a priority because of the strength of their recent performance while low-end mobile devices are attractive because of the opportunity to sell a high volume of these less costly devices in emerging markets.

However, Ovum also predicts that global mobile phone shipping volumes will be down by 9.1 percent by the end of 2009. As a result, to combat declines, mobile stakeholders must dive deeper into current trends and their impact on future sales.

Focusing On Only the Highest Income Consumers Will Hinder Growth:

As the handset market grows increasingly polarized, industry stakeholders may taking the high-end market for granted while failing to realize opportunities to open new markets.

A recent iPhone consumer survey from Nielsen reveals that 40 percent of iPhone users have household incomes above $100K. For those consumers whose financial situation affords them a certain luxury in purchasing decisions, high-end handsets and data plans are in keeping with their lifestyles. However, the number of consumers who fall in this income bracket is quite small, which means that focusing on this group alone may limit the potential to expand the high-end segment of the mobile handset market.

Mobile Stakeholders Must Increase Affordability of Handsets and Data Plans:

On the other hand, there are many indications that a more price sensitive consumer might be interested in purchasing a smartphone at a lower cost or discounted price. For example, the recent “buy-one-get-one” promotion that Verizon Wireless used to stimulate sales for Research In Motion’s (RIM) BlackBerry Curve, was so successful, that, in the first quarter of 2009, the Blackberry Curve became the best-selling consumer smartphone in the US, indicating that for some consumers, cost remains a significant factor in handset purchases.[3]

Manufacturers, service providers, developers and other firms with a vested interest in the success of the mobile industry can increase the growth of web-enabled mobile devices by improving the affordability of handsets and data plans, which are currently too expensive to appeal to a significant volume of otherwise interested consumers.

Expanding the Market Will Benefit All Parties in The Mobile Value Chain:

While, in the past, carriers were particularly opposed to lowering costs and priced data plans high in an effort to limit network saturation, recent financial and political shifts may alter their attitudes around increasing subscriber volume. With wireless penetration rates already high, more aggressive competition coming from the prepaid sector, and the economy struggling, Morgan Stanley recently downgrading both Verizon and AT &T to overweight. As a result, the pressure is on for carriers to prove the strength of their business model.

For manufacturers and developers there are multiple benefits as well – bringing web-enabled handset adoption the lower end of the market will expand their market size significantly.

Mobile Stakeholders Must Act Collectively to Increase Profits:

Currently, fragmentation in mobile operating systems and environments and management makes it difficult to provide a mobile service for the mainstream consumer. As a result of individual companies creating “walled gardens” around their own developments and repeatedly reinventing the wheel, the cost of handset development is high and the speed and frequency with which innovations can be brought to market is reduced.

Similarly, inoperability in data service management creates net inefficiencies that cause bandwidth and data service to remain so expensive for carriers that it becomes difficult to reduce costs for the end user. While tiered pricing may be one way to increase subscribers, as carriers initially feared, it has the potential to slow down the network for current customers and offer limited bandwidth for new ones.

To avoid losing current customers or destroying profit margins in the effort to appeal to price sensitive consumers, all stakeholders must first increase economies of scale in their own business models, and then leverage collective gains in efficiency to improve affordability for the end user.


[1] Gartner, “Dataquest Insight: Market Share for Mobile Devices, 1Q09.”

[2] Ovum, “Mobile phone forecast pack 2008-2014,”

[3] NPD Research,

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Posted in Business, Culture, Mobile, Trends. Tagged with , , , , , , , .