Business Models, New Blog and Missing Links

It's been a few weeks since I've posted any updates here, but for good reason. I'll tackle the title of this post in reverse order, so bear with me on where this is going.

Missing Links - For a while, I was using Fridays to post a set of links that I thought pointed to interesting topics that had relevance back to topics we covered in the MBA program, or pointed out future trends I thought my classmates would benefit from.  I've gotten behind on the weekly posts for a couple of reasons: [1] work has kept me busier than normal (not a good excuse, everyone is busy), [2] I'm finding that between Twitter and RSS feeds (mostly blogs) that I am starting to read and consume content in much different ways than just a few months ago and it's not as convenient to aggregate links. Too many concepts and ideas build off the other. I'll do my best to keep the links coming at least bi-weekly.

New Blog - While courses like Organizational Behavior and Leading Change were some of my least favorites during the program because they felt very theory-centric and terminology-centric, I'm finding their applicability to be some of the most important in my current business.  For example, in the IT industry there is a significant interest in a new paradigm called "Cloud Computing". Cloud Computing allows companies to continue to utilize computing and application resources to service their business needs, but it offers the ability to migrate IT from a CAPEX burden to a OPEX cost model that better aligns usage with needs. While most of the IT industry is debating the technologies to enable Cloud Computing, very few people are diving into the organizational changes that will be required to make this model a reality. So for that reason, I've decided to start a new blog called "Clouds of Change" to focus on the people and organizational elements required to make Cloud Computing successful for businesses. If you're interested in the discussion, or how it may impact your business, I invite you to visit the site.

Business Models - As I've mentioned before, one of my entrepreneurial projects is a new business called Gracely Girl Designs.  This is a business that my wife leads, focused on fun, unique, handmade clothing for children aged 1-10 years. The business is still only 6 months old and is a hybrid between an online eCommerce store and a physical store.  30 years from now, after I've retired, I will remember two distinct things from B-School: (1) In the long-run, it's very difficult to sustainably make $1 in profit (or any amount), (2) There is a HUGE difference between creating a great product and creating (and executing) a great business model.

The reason I bring this up is that we tend to get three types of comments from people at shows we attend. From shoppers we get lots of, "those are so cute, we love your designs". We also get plenty of, "do you think you could make me a ?"  From other vendors we often get, "hmm, do you make those yourself?" (wondering if they could make similar items).  We love the compliments and do create custom orders for unique sizes and color combinations, but we often find ourselves having to refer customers to other sources (eg. Etsy) for items that are outside of our target market. Those orders don't fit into our business model (for various reasons). And for other vendors we simply say "yes". Being a hybrid (online/physical) may or may not be the optimum business model in the long run, but we're using it today to allow us to build up the customer base in our local market. Our customers are often mother's of small children, a social network that lives to make recommendations to friends and accept new ideas. We also hope to leverage that to expand our footprint over time, which should drive the online portion of our business. We'll see, it may or may not work out as planned, but the size of the business allows us to rapidly experiment and adjust the model as customer demand changes.

Another Facebook + HS Reunions update

As part of my How Facebook Could Make Money series, I talked about ways to leverage the nostalgia generated on Facebook for reunions. Well, apparently I've identified another market in transition, Alumni Associations. It's exciting to be ahead of the game at seeing market trends. The fun part happens when trying to come up with ways to be the counter-party that takes advantage of the new rules to create new forms of values.

Sometimes I wonder if I'm doing bad vs. good things

Within the Exec MBA class of 2009, I'm sort of the outspoken "Internet Guy". There are others in the class that do work related to technology, but I'm primarily of the one that waves the flag for all the things the Internet could do...especially as it relates to changing business.

"The Internet" is a pretty amazing thing. It's been a lot of fun over the past 15 years to work on Internet-related projects. In terms of the scope of man-made things that have had as much impact on the world, I suppose it's right up there with democracy, the wheel, the assembly line, and the atomic bomb.

But sometimes I wonder if the pace at which the Internet moves and changes is a good thing for mankind. It's a pros and cons list that I think about quite often.

This video is a good reminder that sometimes we need to put the impact of the Internet on our lives in perspective. Yes, the Internet has allowed people to do some amazing things (collect the world's information, visit friends and family without leaving the house, learn things that otherwise we couldn't afford, connect with old friends, help the world's poor), but it's also changed our perspective on time and scope.

It's good to step back from time and time and put some things in perspective....

Twitter is Mainstream - Will this change the Freemium Model?

A classmate, Jim Schweitzer, posted this update to his Facebook page today "CNN likes twitter now too:http://www.cnn.com/2009/TECH/02/12/twitter.shorty.awards/index.html i don't know if it's cool anymore."

For those that haven't heard about Twitter, it's an online "micro-blogging" service that let's people and companies communicate in short, 140 character messages.   People use it for fun to send status messages to friends ("at work but want to meet up at bar for drinks at 7pm") and various companies are starting to use it as a way to communicate with customers or about their current projects.

Twitter is a free service, with over 1,000,000 users.  To run this service, Twitter obviously has to provide massive amounts of computing services (servers, bandwidth, software programming).  So how does it stay in business if it collects no revenue?  Welcome to the "freemium" business model, where the primary goal is to create as many users of your online service as possible, and then figure out how to eventually get at least a small percentage of them to pay for an enhanced version of the service. Or maybe nobody ever pays for the service, because it's subsidized by online ads. 

I bring this up for a couple of reasons:

1. People have become such big fans of Twitter that others are running contests to help Twitter come up with a business model.  Most of these models involve Twitter charging users for some aspect of the service.  
2. With the economy being where it is today, people have less to spend, VCs are funding fewer opportunities, and companies that aren't cash-flow-positive aren't going to survive very long.  This means asking for money will be difficult (from customers or VCs), but it's almost mandatory to survive.  Tough spot to be.
3. For one of my StratMktg Analysis projects, I'm going to explore the Freemium business model and how companies can evolve into hybrid-Freemium or full-paid serivces.  I suspect it's going to be interesting psychological research, since most customers prefer to see prices go down than up.  

The project isn't due until April, so I have a little bit of time, but I'm really looking forward to seeing what ideas may come out of this challenge.  It's not the same problem I recently mentioned with Facebook, but they have similar challenges.  I hope to explore both aspects.  I'll post the results when the paper is finished. 

[UPDATE:  Looks like Twitter just got a bunch more VC money, and hired their first BizDev person.]

5 Ideas for Facebook to make money - Part V

Idea #1: Yearly fee
Idea #2: Blogging - Reinvented
Idea #3: Facebook Reunions
Idea #4: Facebook TV

Idea #5 - Cell Phone Address Book - How many times have you gotten a new cell phone (new model, new carrier) and been told that you can't transfer your existing contact list to the new phone?  Sound familiar?  Or maybe you sync your contacts with iTunes or Microsoft Outlook, but you occasionally get a new PC (or it crashes, or gets upgraded).  

Considering how valuable that list is, and what a hassle it is to recreate, wouldn't you potentially pay $5-10/year to have it backed up?  None of the carrier seem to offer this service today, even though it would create tremendous customer loyalty and satisfaction.  Facebook should fill this void.  They already own your social network "contact list", which you aren't about to move, so why not add your mobile device contact list as well?  

[UPDATE - After writing this, I was informed by several people that Plaxo provides a somewhat similar service already.  Fair enough.  I still think this is a valuable service to integrate with existing Facebook functionality, but I will work on coming up with a new #5 way for Facebook to make money.]

5 Ideas for Facebook to make money - Part IV

Idea #1: Yearly fee
Idea #2: Blogging - Reinvented
Idea #3: Facebook Reunions

Idea #4: Facebook TV - Based on the popularity of the CNN/Facebook integration during the Obama Inauguration, there are huge opportunities to create social TV environments around live TV (sports, reality TV, American Idol) as well as online video (Hulu, Joost, etc.).

As much as the younger generation would have you believe that the TV is dead and everything will be watched online or via a mobile device, there are still plenty of people that love the experience of their couch and a huge LCD display (in HD). The technology to integrate a TV + Internet experience is quickly evolving, and the time is now for Facebook to take this to a new level. People will be going out less during the down economy, and staying home to watch interactive events. Facebook has the opportunity to truly change on those people interact with their friends during Sporting Events, American Idol, Reality TV, Grey's Anatomy, Lost, etc.

[UPDATE:  Looks like Major League Baseball is already exploring this path with Facebook.]

[UPDATE-2:  Will Twitter-TV beat Facebook-TV to the punch on this?]

5 Ideas for Facebook to make money - Part III

Idea #1 - Yearly fee
Idea #2 - Blogging - Reinvented

Idea #3 - There are ~15,000 high schools in America. Every year, they have at least one class reunion event (10yr) and sometimes multiple events (10yr, 20yr). While there are things like Evite for casual parties, nobody provides a framework to plan high school reunions. Considering the daily reunions on Facebook, it's a perfect extension of a service they informally provide today.

Not only is there an opportunity for Facebook to charge a fee to the reunion planning committee (to find local vendors, host specialized photos, pre-party Facebook events, etc.), but also to take a commission fee from the vendors for being part of the Facebook network.

5 Ideas for Facebook to make money - Part II

Continuing on the "5 Ways" thread...

Idea #1 - Yearly fee

Idea #2 - Host user blogs. Taking a page out of Google's book, the key is to collect as much user data as possible. And this recent phenomenon of "25 Things" shows that people want to write about themselves, and others want to read it. In fact, Facebook may want to look at this trend as an opportunity to redefine blogging, maybe something as simple as Twitter and less intimidating than WordPress or TypePad.

• Do they allow users to use a service that lets that write about products or services they love?
• Could that become the beginning of "virtual" Tupperware parties, allowing people with common interests to attend online events to socialize, get informed, and potentially buy products they love....all with friends or potential new friends?
• Could they come us with new mashable ways to collect the opinions, feedback or thoughts around specific topics?
• Could people choose to be "ad supported" on their blogs by brands that they love or want affiliation with? Maybe they collect a small fee, or are associated with exclusive offers, or just get an ego boost by being affiliated with a brand.
  

If Facebook can come up with a way for people to write easier and more comfortably, there is huge potential to use this information to generate multiple revenue opportunities (ads, brands, events, etc..)

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.]