Thursday, November 03, 2005

...and this is your R&D on drugs...

I got an email from Randy Hanker (who is the Princial of Enable Technologies, a PDM consultancy in Vancouver) in response to an earlier post of mine. I had quoted Dr. Paul Kedrosky, as he made the case that in a world where the cost of customer acquisition, data storage, and software infrastructure drops nearly to zero, and the real value of any startup is in the quality of its concepts, access to venture capital becomes a less and less important success factor. Randy pointed me to the November Business 2.0 where it's suggested that R&D costs have plummeted (as well) because "the user base has become the manufacturer's R&D lab". I hadn't seen that talkback (thanks for that, Randy), but I had noticed what Randy was talking about, this very interesting change in the way that R&D is being done. Companies (like Konfabulator), are leveraging the community gravitational effect to build active innovation communities around their platform. It's a popular idea (that often proves hard to execute) that by publishing web service/RESTful APIs, or by open-sourcing some or all of your IP, you can bring value to these communities. The most successful Web 2.0 companies are being proactive and going further, creating forums (fora?) for their customers to add value of their own, strengthening the ties that bind the community to itself, and to the platform. At the same time, some larger companies are adopting a kind of R&D model that has been popular in the Pharmaceutical industry for quite a while: small companies (like Ludicorp), innovate, creating new capabilities (like Flickr) with only a general idea how to commercialize. Once they have proven they have something of value, a larger company (like Yahoo) acquires them to feed into their "commercialization machine". As an interesting aside, I'd point out that in addition to looking outside, Google has leveraged their enormous cash resources to create their own internal community of part-time entrepreneurs, who then get "bought" from their current projects to work full time on their new invention; gmail and scholar being two examples that stand out. It's easy to see how these two trends reinforce each other: Lots of entrepreneurial activity creates lots of opportunties for bigger players to cherry-pick, and those high-profile success stories encourage yet more activity. It's when you add venture capital accelerant that the whole thing starts to spin out of control, but that's another story. Coming soon: Oprah Winfrey gets it. Jon Stewart, not so much.

Wednesday, November 02, 2005

Conversation is the new Television

Further to my thesis that technical writing and marketing (not advertising!) need to converge, I dug up an older article, Conversation writing kicks formal writing's ass, from Kathy Sierra, blogging for Creating Passionate Users. In it, Kathy points out that in studies performed by the Journal of Education Psychology, perfomed in 2000, participants who used trainging materials in a conversational style "produced between 20 and 46 percent more solutions" than subjects who used documentation in a formal style. She goes further:
(...) one of the theories on why speaking directly to the user is more effective than a more formal lecture tone is that the user's brain thinks it's in a conversation, and therefore has to pay more attention to hold up its end! Sure, your brain intellectually knows it isn't having a face-to-face conversation, but at some level, your brain wakes up when its being talked with as opposed to talked at. And the word "you" can sometimes make all the difference.
This makes perfect sense, of course. Humans are pack animals, and are built to crave authentic, human, interactions. Put that thought beside what Bob Garfield at AdAge says in his article "Listenomics":
"...and that native authenticity is out there, like Arctic oil, just waiting to be tapped. Pitiful as this may sound, there are people all across this great nation of ours who give immense amounts of thought to, for instance, the Whopper Jr. They´┐Żre not in it for the money, either. They just plain care."
They sure do. They're creating unsanctioned television ads, writing unofficial user guides, mashing up logos and trademarks into new works that express how they feel, and what they want to get out of your products. Garfield gives the great example of Skin So Soft, which was known as an effective insect repellent. I know this to be true, because I was treeplanting in the late 80's and we all used it instead of Deet. Of course the company hated this - it wasn't part of the story they were trying to tell around their product. It took them a decade to bring out the product we all really wanted: a "Skin so soft" optimized for repelling insects. Have you ever driven 15 miles in the cab of a truck with 6 sweaty treeplanters covered in heavily perfumed body oil? Ugh.

Tuesday, November 01, 2005

So, now I'm really convinced...

David Hornik, who is a partner at August Capital writes in VentureBlog that he's got no idea what Web 2.0 is all about (probably because it's not about venture capital). Once you get past the giggle that he's writing about this in his blog, he goes on to make a very good point, that it doesn't much matter whether Web 2.0 is revolutionary or incremental if it gets entrepreneurs creating cool stuff that makes our lives better. I'd add to that - what the heck is wrong with just building (and owning 100% of!) a small, profitable, company? Well... unless you're a venture capitalist, I guess. Paul Kedrosky, who is a Fellow at Ventures West, and was one of my co-presenters at the Vancouver Enterprise Forum's panel on Web 2.0, said it perfectly: The cost of customer acquisition has plummeted, the cost of infrastructure has plummeted, the cost of software has gone basically to zero; so why do you need venture capital again? He added that when entrepreneurs come to him and say they need n million dollars for their new Web 2.0 startup, he tells them: you don't get it. In 2001, when I started Enfolding Systems, the tech bubble bursting imposed some of that discipline on us - we couldn't really raise significant capital, and we had to focus on building value, and doing it on a shoestring. Ultimately, we were acquired by Blast Radius in 2002, which worked out well for everybody, I think, but that wouldn't have happened if we hadn't left ourselves (as shareholders) the flexibility to exit in a creative way, that suited us. If we had done a VC round (as, frankly, we had hoped to do), that acquisition would never have happened, and I wouldn't have been able to do all the cool stuff I've done in the last three years.