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I’ve been reading curiously about the new beta Facebook Credits platform.  Most coverage tends to focus on the unique elements of allowing users to vote economically for better content.  Give a good content producer some credits, and perhaps that will incent them to produce more.  Think Digg with economic value.  I think the launch of Credits again reflects the brilliance of Facebook and I for one see a much bigger play at hand.

Facebook understands very well the amount of money flowing into virtual goods, both from their own virtual goods, as well as the money machine created by their gaming partners like Zynga, SGN, and the like (who buy large chunks of advertising to feed their virtual goods money machine).  Enabling users to generate credits that work across games and applications would be of huge value, and allows Facebook to generate different and ultimately more economics from the platform developers.  In addition, Facebook now represents over 1 in 4 US pageviews.  Their user base is over 200 million.  They have HUGE scale, which allows them to have the credibility to pull off a payment play.  Users would inherently trust the FB platform over fragmented app creators.  This creates the perfect recipe for a Paypal alternative, and has inherent distribution that a Google Checkout or Amazon may not.

So why not just come out with the grand plan?  Well, the launch of a payment platform is non-trivial.  There are hundreds of ways it can go wrong; PayPal has spent years and huge sums of money learning lessons on how to deal with fraud.  Amazon, Google Checkout and others are all working through their own issues.  It also deals with one of the most sensitive items for people (ie, their money).  On a social platform like Facebook, the last thing you want to do is to alienate users.  Facebook cannot turn on a major transactional system that would be the immediate target of phishing, fraud, and rip offs without understanding the issues thoroughly.  The initial Credits approach lets them dip a little toe into the water, quietly and under the radar, and rapidly gain feedback/experience without exposing themselves to major financial or reputational damage.  With that knowledge, they can slowly train their way into the Paypal market.

I have a lot of respect for what Facebook has built.  And per my prior post, I think they are going to spread their tentacles broadly.  Facebook controls the social graph, Facebook Connect controls identity, Facebook “Communications” will come, and Facebook Payments on the roadmap…. Stay tuned, and note the date and time of publication, but that’s my highly speculative, uncorroborated and unsolicted vision for their future.

[Update 11/26/09 - looks like things may be happening behind the scenes .  This seems much more like a transactional fee, but I'd bet once it works internal to Facebook, it'll show up externally as a third party service but with a more paypal competitive pricing model.]

Certain things are all about timing.  My situation with my smartphone is one of them.  I have grown incredibly frustrated with AT&T’s service on the iPhone, to the point where I am close to a breaking point.  3-4 drops on a stationary 30 minute call with full bars?  As much as I love the iPhone with all its applications, there are definitely a few things I would change about how it handles email support.  I can’t help but think back to the simple but reliable days of my Verizon Blackberry (putting aside of course my VC requirement to have an iPhone).  I am vulnerable, I am questioning, I am searching for how this gets better.  Timing could not be better for some solution to this, as so far, the only answer has been to hope the iPhone continues to innovate and launches on Verizon in 18 months.  As those doubts have come creeping in, I see the promising “iDon’t”, “Droid Does” ads from Verizon, causing me to pause and think.  And I don’t think I’m the only one.

Android itself comes at an impeccable time.  The entire industry is in pain, with the exception of Apple, who is now suffering from the woes of its partner’s network.  The industry is crying out for a viable third party, open solution.  Windows Mobile is currently getting terrible reviews, Linux on the mobile has had fleeting momentum, and Android is benefitting from the major halo surrounding Google.  Motorola is staking the next generation of its franchise around the device.  Verizon’s strong network and user reputation is using Droid as their play against the iPhone until Apple comes to the table with more reasonable terms.  New specific function devices are proliferating, with the launch of e-readers, tablets, slim phones, smartphones, TV/movie devices, etc, all requiring a system to manage resources.  And a whole community of developers is inspired to make Android successful – in and outside of cell phones.

My belief is that Android will become a lasting, successful platform in the mobile device space.  I also believe the ecosystem around it – including an open store, applications, games – all will follow.  Apple has the clear lead, but with no other player having the critical mass to build an alternative (other than Microsoft who seems to losing momentum), Android becomes a real galvanizing alternative.  Whatever the outcome, I hope it leads to reliability and choice for consumers!

I did a post a few days ago around the high level themes from our Online Marketing Summit called “Stop Selling, Start Giving”.  There were enough very practical tactics that emerged from the event that I thought I would share some below.

SEO: 

• The best time to think about SEO is when building a new site.  When using any good CMS system, such as Drupal or Joomla, be sure to use their SEO plug-in modules.  It will make it very tough to not have SEO on the site. 
• Links are very important, particularly ratio of inbound links to outbound links.  Also, the deeper and more specific you can have links to the site (rather than just all to the homepage) that will improve the SEO of the site and pages.  Make sure your content is structured in such a way that incents people to point to deeper pages.
• SEO is a process involving content creation, engineering head count, links, technology, and budget.  Create commitment to SEO in the organization.  Hiring one person cannot change an organization or generate real SEO value.  Consider allocating 10% of engineering time to SEO work.  The best practitioners have everyone in the organization focused and thinking about it.
• Resources:  SEOmoz.com, Conductor.com

SEM/PPC

• Before you spend your budget on an SEM campaign, be sure to take 10% of it FIRST and do a test run.  You can save yourself some major embarassment in case something was not set right and to further tweak. 
• Be very careful using BroadMatch – you could spend money in a heartbeat on terms that are not related to your product or service.
• Keyword research is critical.  Lots of tools out there can help, but also thinking about negative keywords, plural vs singular, etc, are all ways to create variation. 
• Resources:  Clickable’s free guide SEM best practices and tips

Community

• Create a community and empower it to set directions – a censored community is not one at all.  Manage but “with a light touch”.   Allow users to moderate content.
• Recognition is key for community growth – tiered structures, badges, experts, rewards (virtual or physical) are great ways to accomplish this.
• Transparency is critical – if you have an issue, publicly engage the community and tell them what is going on.  Building trust is paramount to a vibrant community.
• Measure the community -  post activities, engagement, session lengths, etc.   The numbers will tell you if your community is active and thriving.  If it’s not working, find out why!  It’s usually something you did.

Email

• Email is NOT for acquisition, it is for retention! 
• The FROM and SUBJECT alone determine if someone opens – the questions they are asking are “DO I KNOW YOU?” AND “DO I CARE?” respectively.  Answer those questions well.
• Build your lists organically by providing VALUE to users such that they want the information rather than a marketing message.  Use things like questions that your customer service receives as material for future newsletters.  You dont need dozens of articles – a few targeted ones that serve a purpose and give value to customers is better.
• Create links back to specific pages on your site so you can track activity and users interests. 
• Make sure you have a sign-up form on ALL pages of your site.  Customize the thank you note when someone does sign up – show genuine appreciation for signing up.
• Most people have images off in their email clients – dont have a huge picture at the top or users will see a big X instead of a message in their preview screen.
• Testing is key – treat email just like PPC.
• Use the word “Feedback” instead of “Survey” – people are much more willing to provide feedback than take a survey.  One improves their life, another takes time from their life.

Marketing Automation

• If you can read the “Digital Body Language” of how customers are interacting with your site, content, and marketing activities, you can calculate how likely they are to buy and where they are in sales cycle.
• Lead scoring is critical to understand when marketing activities transition to sales type of activities.
• Separating FIT of buyer from ENGAGEMENT of a user is critical.  A key decision maker doing a few things online and a summer intern doing a lot online should not have the same lead score.  A CEO doing A LOT is the ideal.  Segment those rigidly and pass on to sales things at the closest intersection to improve MQL close rates.

Integrated Marketing Approach – Case Study of Omniture

• Marketing commits to generating 35-80% of sales accepted leads, and in closing 35-40% of deals in a quarter.  If you do not know what number you are responsible for, you are not strategic.
• Dont do live webinars – record and push it out there – allow your customers to sign on when they can, fast forward to what they want, and interact as they wish.
• It’s hard to find online marketing savvy folks.  If you cant find someone smart, hire an inexperienced, smart person and send him/her to get certifications:  DMA, AdWords, etc.  Make sure they have gone through the formal trainings – well worth the investment, and smart people without legacy biases will get this system.
• Map your marketing process to a sales process – someone looking deep on product page is much further in a funnel than someone downloading whitepapers.   Know that and automate.
• Sample mix of budget:  25% Site and Content, SEO 15%, SEM 15%, Email 20%, 3rd Party Emails 10%, Display Ads 5%, Newsletters 3%, Tradeshows 7%.

John Deighton’s definition of Interactive Marketing:  “The ability to address the customer, remember what the customer says and address the customer again in a way that illustrates that we remember what the customer has told us.”

Any other suggestions, please post below!!

FirstMark Capital yesterday hosted an Online Marketing Summit for our portfolio companies and friends in the community.  The goal was to bring together the latest thinking across a variety of functions (SEO, SEM, Email, Community, Social, Automation, and others) and to improve the overall fluency of our companies regardless of their field.  If I were to summarize everything I learned at the event, it was to “Stop Selling, Start Giving”.

The Internet has democratized customers’ abilities to learn about new products, instantly provide feedback, and share their experiences with others.  The traditional model where sales controlled the product message to buyers, carefully built relationships, and used those relationships to close deals has been permanently broken.  One way marketing strategies can now be easily sidestepped by a user that self-selects how to use products and research decisions on his or her own.  As a result, marketing’s role has changed to find buyers when they are ready to make a decision based on their OWN actions.  Steven Woods from Eloqua calls it “Digital Body Language”.  By reading the Digital Body Language, sales can step in at an appropriate and desired moment to facilitate the close of a deal at the right moment of intent.

What does it mean to “Stop Selling, Start Giving”?  By that, you should try to begin the dialogue with a customer with a value proposition and an insight that addresses a problem they have.  If they don’t have a problem, they don’t need your solution.  If they do, actively help them understand the PROBLEM better, not your PRODUCT better.  One tactic could be a whitepaper, another could be giving away your product for free initially, another could be hosting a community forum where experts comment on industry issues.  In addition, by actively participating in the customer pain and facilitating their dialogue, you gain a precious opportunity to subtly influence and learn from the dialogue.  Transparency exists whether you want it or not – embrace it!

By the act of giving, you’ll begin to engage a prospective customer in a series of activities.  Each of those activities can be measured online and used to decode where a customer is in their buying process.  Are they just exploring the web site?  What sections?  Have they downloaded a couple of specific whitepapers?  Now moved to using the product?  Asked for some help?  These data points can be mapped to a buying cycle where you can appropriately insert yourself to a sales activity.  Done well, you can tie all of these data into one continguous funnel that starts with first contact at the top and closes with a sale.  But it all starts by giving, not selling!

I had been asked a few times over the last week about my thoughts on the Zappos transaction.  I think this is a great story for innovation and startups.  Zappos started in a space many believed you could not transact online: selling shoes without people trying them on… Of course, as the world has grown increasingly comfortable transacting on the Web, that changed pretty quickly and Zappos took off.   With their focus on customer service and company culture (can watch a video by Tony Hsieh on that here), they were able to build sustaining brand advantage.

Ultimately, I think Zappos could have gone public, but Amazon stepped in and paid over 20x+ reported EBITDA of Zappos.  That’s a serious multiple, healthier than the public markets now.  And of course, in an online business at this scale there are significant capex cost, so I’m sure if you looked at cash flow, you get an even bigger premium.  Zappos built a dominant brand in a category, and Amazon stepped up and paid a premium to get the company.  To me, that’s a textbook entrepreneurial story.  I think you will continue to find next generation e-retailing companies thrive, but with an innovative new spin.  Gilt just raised money at a reported $400MM valuation, and had multiple bidders competing to get in.  There are a whole generation of companies pushing the ‘mass customization’ or ‘personalization’ theme, and doing well.  It’s all about finding a novel approach, attacking it quickly, and building scale at a brand level before someone can catch up.

Many have written about the rise of highly capital efficient companies, the growth of SaaS, the penetration of technology into the SMB community, and the new requirement to deliver value to customers at the time of purchase.   Each of these strategies has radically altered the sales process.  No longer are armies of sales people sitting in customers’ offices or spending endless hours over dinner trying to forge relationships they can lean on in the sales process.  Instead, customers are “pulling” solutions they are interested in, trying them out for free early on, and selecting products that meet their needs.  If the best way to do sales is to have customers “declare” their interest, then one needs an exceptionally broad funnel to ensure productive sales activity.

As a result, marketing in this new era is undergoing a rapid transformation.  Marketing is no longer about softer concepts like brand building and trade shows; no longer simply providing the appropriate message and collateral for the sales organization; no longer sitting with industry analysts, hoping for positive coverage.  Instead, it has become a much more active, tactical, and quantitative function.  Done right, it becomes a highly integrated and critical part of the overall funnel. 

The next generation of marketing leaders will be fluent in online acquisition channels and implementing a real time, transparent, measurable system.  The areas of spend are highly fragmented: SEO, SEM, Email Marketing, Affiliate, Social Media, Community, Video, and on and on, balanced with the traditional channels of PR, magazine and trade shows.  Quantifying cost per lead, customer acquisition costs, conversion rates, and value per customer across each of these channels requires significant discipline.  Architecting follow up in a highly automated manner and driving to increasing levels of qualification becomes key.  Webinars, emails, and free trials are scalable ways to move potential customers along and require minimal touch.  Site activity, logins, and usage inform how much deeper customers are getting. 

The challenge is that many of these channels have only been around for a few years at most.  At FirstMark Capital, we are trying to support our CMOs make the transition by sharing the nuggets of best practices across our portfolio.  Luckily, via companies like Clickable, Conductor, and others, we have some of the leaders in these areas within the portfolio.  We are also organizing an annual Online Marketing Bootcamp for our portfolio companies and friends of the firm to augment organic knowledge with leading experts in the field. 

If you are one of these types of CMOs, we’d love to hear from you.  We have lots of places you can be used! 

I attended the Wired: Disruptive by Design Conference earlier today at the Morgan Library in NYC.  One of the best sessions was of course with Jeff Bezos, CEO of Amazon.com.  I have an incredible amount of respect for Jeff, not only because he stayed true to his strategy in spite of an incredible amount of pressure during the bubble bust, but also because of the spectular innovations that have come out of Amazon over the years.  The Kindle has revolutionized the e-reader market and launched Amazon into a consumer electronics company.  Amazon Web Services of course has transformed Internet economics from fixed costs to variable ones, and unleashed a wave of new companies to boot.  Jeff did not disappoint, and I thought I would share some of his thoughts below.  My favorite from below – “The trick as an entrepreneur is to be stubborn on the big things and be very flexible on the details.”  Enjoy, and feel free to post any other good ones you have from Jeff. 

On the economics of e-books and the Kindle: 

• A text book is re-sold 5 times over it’s life, which is why they cost so much.  With digital books, publishers have the opportunity to sell that 5 times to consumers.   The price can now come way down.
• Historically, we have never made money on bestsellers.  We make money on the mix.
• For books where we have both physical and e-book inventory (300,000 books), Kindle unit sales are 35% of the physical book sales.
• “We humans do more of what is made easy”.  You do more when you reduce the friction.  Making buying books so easy makes people buy more.
• Reading is an important enough activity to have it’s own device.
• On multi-function devices versus signle function:  “I like my phone… I like my swiss army knife, but I also like my steak knives too.”
• “The physical book has had a great 500 year run, but it’s time to change”
• “Our vision is to have every book ever printed, in any language, available within 60 seconds.”
• On Google’s pending deal with the US book industry:  “It doesn’t seem right to get a prize for violating a large series of copyrights”

On staying true to the path and entrepreneurship:

• “We always noticed some of our harshest critics were our best customers.  Told us we must be doing something right.”
• Regarding the run up in the bubble: “I always told our employees not to feel 30% smarter when the stock went up by that amount because one day it will go down by the same.”
• “One of the differences with founders and professional managers is that the founders care about the detail of the vision.”
• Regarding vision and strategy:  “The trick as an entrepreneur is to be stubborn on the big things and be very flexible on the details.”
• “If you disrupt something, you have to be willing to be misunderstood for long periods of time.”
• Regarding products that seem very different:  “A question people at large companies don’t ask enough is “Why not?”" 
• “I wouldnt know how to respond to someone if they said, “We cant do this because it’s not in our knitting.’”
• “The two things we do is work backwards from customer needs and work forward from our set of skills.  AWS is an example of us working forward from our skills, while the Kindle is an example of us working backwards from customer needs.”
• “Many companies believe learning a new skill is akin to leaving your core competency.”
• “Errors of comission are over focused on versus errors of omission.  People over dramatize how expensive failure is.  You never hear of a company getting criticized for failing to try something.”
• On trying different ideas:  “If you are in the investment phase and you stop doing it, the only thing that happens is your profits go up.  How hard can that be?”
• On mistakes:  “We launched Auctions, no one came.  We licensed Google’s search and launced A9 and no one came.  A year after we shut it down it was still my mom’s homepage.”
• Citing another quote in response to why they didn’t better service and if it was deliberate or not: “Never attribute to conspiracy what can be explained by incompetence.”

It was a great session and Jeff had some great lessons.

With Apple’s 3.0 version of the iPhone quickly approaching, one of the most widely anticipated features is the “Push” functionality.  This allows developers to send alerts, notifications, and other communications to the phone without the application actively being run. 

While one can see the obvious utility in the feature, the part of me that manages my email inbox is dreading the feature.  I am not as bad (or efficient, you pick the term) as those who manage to a “zero inbox“, but I do try and make an effort to have no unread emails every few days.  With this new Push feature, I’m envisioning throngs of app developers desirous of keeping me engaged with their app sending daily, hourly, and minutely notificifations.  I’m imagining paging across the screens in my iPhone and seeing 40+ apps each claiming I have 30+ new notifications.  And I’m thinking the Email manager in me will start to feel very behind….

So what will happen?  I’d bet the following:

1. I will find exceptional utility from the few apps that I use regularly that provide me with notifications, and will try to stay as current as possible with them.  The Push feature will enhance my productivity.
2. I will no longer feel comfortable looking at screen after screen of apps I barely recognize indicating I have a bunch of missed messages.  I will start deleting apps that I currently dont use but keep on my phone in the background. 
3. I would bet my reaction will not be dissimilar to others, and notification “spam” will eventually hit a tipping point.  Apple will step in to regulate the push feature.  They will ensure all notifications are explicitly opt-in and customizable, not simply by virtue of agreeing to download the app.

All of the above is with the caveat that I dont have the details for how Apple will make the feature available to developers.  But I’m hoping I don’t have a new stack of attention draining activities to manage….

Though I don’t have time to be a hardcore gamer, I do dabble with a few to keep myself current with the state of the art in games, tools, infrastructure, and services.  My experience last night validated an extensive post I did a few months back on the world of Games as a Service. 

I decided to fire up Halo3 (yes, I know old, and far behind other new FPS games) to log onto to the “Team Slayer” playlist.  In this mode, you are linked by rank and skill level to other random players on the Xbox Live network to form a team.  Your “red” team attacks another similarly formed “blue” team with the goal to be the first team to get to 50 kills.  You play on maps, which differ in environment, layout, buildings, weapons, etc. 

Curiously, I could not log onto Team Slayer mode because I did not have “the required maps” (Non-Mythic DLC for those that care).  Upon doing some digging, it turns out that Bungie/Microsoft was requiring players to purchase newer map packs that previously had been optional upgrades.  Historically, if you did not buy the new maps, the servers would match you to players that had your same map packs.  This of course would lead many players to play whatever maps were free, and only download newer map packs when they became free.  Hard core players who wanted to learn the best strategies before anyone else would pay for early access to the new packs, but they would have a much smaller universe of players to compete against in those worlds. 

Requiring subscribers to pay for the new maps to access the Team Slayer mode raises some really interesting questions.  The blogosphere and forums were full of strong opinions.  On the one side were the hardcore players who wanted everyone else to pay so their network would have more players.  They also defended the need for Bungie to keep getting paid for an entertainment offering to keep it alive.  On the other side were gamers who believe they had paid for the game, which included the Team Slayer function, and they should be allowed to play with whatever maps they chose to have and not be forced to upgrade.  They would also claim they already pay Microsoft a monthly subscription fee for the Xbox Live network, which is intended to link them to other players. 

I think this approach is a perfect example of a publisher extracting economics in a continuing GaaS driven model.  The new maps cost me about $10, roughly 20% of the original game cost.  As an aside, that seems magically to be about the same as the annual percentage charge for maintenance with licensed software, and the rule of thumb in what annual SaaS prices should be versus comparable license charges.  And one can likely bet there will be new maps in the future for which I will have to pay for.  I also pay $50/year or $5/month for the Xbox Live membership.   If I was not forced to upgrade, then Bungie/Microsoft would have little incentive to keep developing new maps, and eventually a large portion of the audience would move on to a different game.  From their perspective, it makes complete sense to communicate continuously with me through the game, enticing or forcing me to upgrade my game to continue to play the content.  It extends the life of the service to a wider audience and helps them build a strong recurring revenue base.  Both great examples of GaaS offerings and a marked departure from the old CD based model!

Disagree?  Or more importantly have a strong opinion on the debate?

TimeWarner Cable made a lot of news over the last few weeks when they introduced their tiered pricing strategy for high speed data services.   The plans ranged from $15 to $150/month depending on the amount of bandwidth consumed.  Their argument was that:  1) as a facilities based provider, the growth in network usage is forcing their costs to go up, which they need to recoup;  and 2) this should reduce the bill for the many customers that don’t use even the lowest level of usage (so the poor user saves) and affect the super users who extract massive benefits for the network (and the rich user pays).   From TWC’s COO, “When you go to lunch with a friend, do you split the bill in half if he gets steak and you have a salad?”   I’m not opposed to the rationale in concept, but I do think there are several issues with it. 

Plenty of people have talked about how the magic of photonics over fiber based plant has reduced the marginal cost of adding bandwidth fairly significantly.  Bandwidth has an advantage over Moore’s law, in that it has two dimensions which can demonstrate improvement:  concurrency of streams (number of waves sent over a medium) and rate of modulation/encoding of those streams (10Gb/s, 40 Gb/s, 100 Gb/s, etc).  That multiplication creates huge drops in the cost of providing an incremental bit. 

More telling to me is how vehemently the Cable industry fought a-la-carte pricing for television.  This was the idea of forcing the MSOs to allow consumers to pick the channels they wanted to subscribe to and only pay for those a-la-carte, rather than the current model of buying a monolithic stack of hundreds of channels, where the vast majority are never consumed.  In the interest of philosophical consistency, wouldn’t the a-la-carte argument be just as eligible for the “consumption based pricing” label as the data plan argument?  I tend to think so, and can only reason that it’s simply not in their economic interest to offer that argument. 

Clearly, the industry has no interest in shooting its cash cow in the foot.  It is only natural to fight the mandated a-la-carte pricing.  But the industry can also not be blind to outside threats.  The availability of premium shows online in high quality over the Internet, the rise of on demand time and place shifted viewing, and the high broadband penetration rate has created a competitor to the proprietary, linear world of COAX.  I tell many people that if ESPN360.com were not blocked by TimeWarner, I would have little reason to pay the $160/month I currently pay for cable television and high speed data.  I’d be able to watch live streaming sports via ESPN360 or CBSSports for March Madness, and I’d watch the 5-7 shows I DVR online at HULU, Boxee, or some other destination.  All of a sudden, my $160/month bill would be compressed to just over $40 for unlimited data access. 

I’m sure the executives at the various cable companies have also done that math.  And I believe they see customers doing it at a much more rapid pace.  What better way to ensure one’s revenues are not cannibalized, and in fact be allowed to thrive, than to introduce consumption based pricing for data.  In order to stream a few HD shows a few times a month would automatically push one into the $150-200/month category group of consumer.  At that price point, the MSOs are absolutely indifferent to whether I watch my shows over their proprietary network or over the Internet on my data pipe.  You can go a-la-carte but pay them just as much.  In fact, they probably are incented to switch me over for revenue generation and cost efficiency gains – it’s way more profitable for them! 

The path ahead will be tricky.  TimeWarner has already rescinded plans for testing of tiered pricing, because of the consumer fury it has set off.  If they move too quickly, they risk net neutrality legislation being thrust upon them.  Better to let consumers think they won and come out with another plan, lest their hands get tied.  But I think we are crazy to think tiers won’t be introduced somehow in the future.  The MSOs are too smart to let their analog dollars get turned into digital quarters.

What do you think?  Am I being too skeptical?