Some people never learn...

The Wall Street Journal is claiming that Microsoft has it's MOJO back. Microsoft's Director of BusDev is turning up the PR hype machine. But haven't we all heard this song and dance before, especially after two internet or media giants merge?

SynOptics & Wellfleet

3COM and US Robotics

AOL and Time Warner

Lucent and Alcatel

So why will this one fail as well?

1. Geographic distance - Seattle and Santa Clara are both in the same timezone, but even technology like Telepresence or Halo isn't going to recreate the impromptu water-cooler meetings where most strategy gets originated.
2. Cultural differences - An Internet company and an Enterprise (and failed Internet) company. Oil and water don't mix.
3. Don't buy the Competition - People matter, and people that were competitors the day before don't easily become friends with "the enemy". This is a great way to have the best people from either company leave. And this little tidbit of detail won't make things any easier.
4. Lack of Innovation - While Bing is new, and contains some interesting technology, it's not a leap forward. It's an incremental difference that isn't sustained by superior scale or cost savings.
5. Lack of Problem Solving or Value Creation - Microsoft has tons of cash. Yahoo has tons of users. Neither could figure out how to bring new value to the business in the face of Google's growth. Merging the two doesn't create any new value for customers.

I was at Cisco for about 125 acquisitions. We didn't get all of them right (maybe 15-20% were big hits), but we made sure to try and meet each of those criteria before pulling the trigger.

In the digital world of the 21st century, scale is critical, but innovation trumps all. The media loves a big story, but rarely do shareholder benefit long-term when financial engineering replaces innovation.

It's Difficult to Focus on Multiple Things at the Same Time

As the Germans learned in WWII, after bombing Pearl Harbor, it is very difficult to fight a competitive battle on multiple fronts. Valuable resources get spread too thin. The best people aren't all aligned to a common strategy. Communications becomes more difficult.

The recent Google Chrome OS announcement is going to create an interesting battle for a number of reasons:

• Technology innovation (Desktop OS vs. an Internet OS)
• Freemium vs. Premium Pricing Models
• How many battles can either company sustain and still be successful in their core businesses?
• How much is Google willing to put into their non-search businesses in order to keep Microsoft from gaining traction in search?
• How much is Microsoft willing to put into Core OS (Windows) or the Internet version (lower margins) to maintain those cash flows?

And of course the most important question for MBA students - do each of these projects create a positive NPV? (ok, being sarcastic)

It must be fun to sit in the war rooms of either Google or Microsoft and plot how to block or take the other guys market (on a huge scale). Of course we do need to continually ask ourselves, are any of these actions add real value to their customers, or are they potentially opening themselves up to new competition?

5 Ideas for Facebook to make money - Part I

As an avid Facebook user, and following the recent trend to make lists, I thought it would be fun to come up with some ideas to help Facebook make money in 2009. Their user-base is seeing rapid growth again, but they are still struggling to monetize all that user data. For the sake of time, I thought I'd condense this list down to 5 things.

Many of these ideas are based on the growing number of 30-40 somethings that are joining. These folks use it as a distraction from their existing lives, or as a way to keep in touch with old friends, or to remember happier times.

Idea #1 - Charge for usage. $9.99/year. Millions of people pay that much for a month of NetFlix, or a day's worth of Starbucks. There's $1.6B in revenue (at 160M users).

Plenty of people will say that violates the spirit of what allowed Facebook to grow, which was the Freemium business model that gained popularity in 2005-2008, with the rise of many Web 2.0 companies. Fair enough, but how many of those companies are going to survive the latest economy crisis? And by survive, I'm really talking about being a long-term business entity, not selling out to Google, Yahoo, Microsoft or some other large internet company. Let's think in terms of truly building a business, not an exit strategy.

At some point, Facebook needs to be able to ask their users (directly or hypothetically), "if we were gone tomorrow, would you miss the service?" If the answer is "No", then charging a usage fee is dead. If the answer is "Yes", then you have a very viable starting point to explore a fee.

I have some ideas about how they would create the inflection point for making the change from Freemium / Ad-Supported to Fee-Supported, but I'll hold off on those for another post. I think 2009 is going to be an interesting year to see how some of these models survive and also how create they get with revenue models.

[NOTE - As I mentioned before, it's good to put large numbers in perspective.  Facebooks existing user base (160M) is equivalent to 52% of the US population; is equivalent to 73% of US broadband users; is equivalent to 10% of worldwide broadband users.  Needless to say, there is a lot of growth potential for Facebook worldwide.]

The Pace of Change

Following up on the recent Discussion of the Week, I found myself reading a recent BusinessWeek article on the World's Most Influential Companies. I thought it was worth highlighting this article, as it provides an alternative perspective on the pace of business change, which I previously highlighted. Sometimes really big numbers are good to get people's attention, and sometimes it's useful to bring a more focused lens.

Let's take a quick look at the list, and compare it with the 1990s and even the early part of this decade.

1. Apple - Two things are amazing here - First, we don't call them Apple Computer anymore, because while that is still the core of their business, the influence they have created are in Lifestyles, Telecommunications, Music, and Video. Second, they've overtaken Microsoft. Actually, both Apple and Google (also on the list) have ovetaken Microsoft. 10 years ago, Microsoft was fighting a worldwide anti-trust suit because of their might and size. 10 years later, they are quickly becoming a non-player on the Internet and are seeing their marketshare for computing reduced.
2. Google - The article makes a great comment, "Ten years ago, all Google had was Larry, Sergey and an idea." There it is again, 10 years. That's all it has taken for Google to not only capture 70% market share in Internet search and advertising, become a verb, and crush Yahoo and AOL, but also prove that by freeing information to the masses, people are able to create new economies.
3. Unilever - I don't know as much about Unilever as some of the other companies on the list, but the explanation given for their global success - reaching out to and building emerging communities, giving away knowledge to communities, rapidly adjusting their product at the edge to experiment with new business models - all of these align with the 21st century way of thinking about Edge Economics, Long Tail Economies and building value through Tribes.  This should be an interesting battle to watch between Unilevel and P&G in the consumer space, as P&G has also been extremely active in "Proudly Found Elsewhere" innovation model.
   
4. JP Morgan - While JPM has been around for years, it was their (relative) prudence and foresight that allowed then to come through the crisis head and shoulders ahead of Citi, Lehman (R.I.P.), Merrill, BoA, Wachovia and many others. One interesting aspect for MBA'ers to realize is that Jamie Dimon (CEO) was fired by Citi because he wasn't able to implement the ideas has has since implemented at JPM. It's important to build a network of people that look at the world in different ways, and be willing to understand them (although not always agree), because you never know when you'll be able to tap into that network.
5. NewsCorp - Not AOL, not TimeWarner, not NBC. None of these companies had the foresight to see that two critical elements were needed in a digital entertainment world - First, you have to build a platform. Silos don't allow integration, sharing and flexibility to adapt to new markets and technology. Second, you have to embrace and adapt to the Internet and digital media. NewsCorp has done this better than almost anyone (although ABC/Disney/ESPN isn't far behind...plus they have tight ties to Apple/Pixar because of Steve Jobs).
6. Toyota - Even though all the signs were on the wall, few people truly believed that Toyota could overtake GM as the #1 auto company. Not only are they far and away #1, but nobody really talks about Honda or the Europeans (BMW, Renault, Mercedes-Benz) anymore, other than as a niche. What's amazing to me is that they will let you tour their factories and teach you their model, but we haven't seen any of their executives leave to run one of the other companies.
   
7. Huawei - Never heard of them? You're not alone. Outside of the telecommunications industry (and China), Huawei is a well kept secret. But they are quickly eating into 900lb gorilla Cisco Systems in the race to build the next-generation of connected networks.

10 years!  Just 10 years....  

That's all it's taken for this list to go from Microsoft, Cisco, Citi, Big3 Autos, and TimeWarner to Apple, Google, Huawei, JPMorgan and Toyota.  

A lot of this change had to do with companies that truly embraced the new technology, but it's also highlighted by companies that took a very different view of their markets and changed the rules.  

It's a potentially scary place to be if you're looking for long-term success with models from the 20th century.  But on the flipside, it's an extremely exciting place to be if you're willing to look outside the box (maybe a long way outside) and challenge some conventional thinking, rapidly adopt technology, and explore some of the concepts that will be demanded by the global economy in the 21st century.