Thursday, November 08, 2001

Whether you like it or not – sex sells

The article below was the last I wrote for Gorilla Asia, and one of the final IandI events that I remember being held. The article was never published online. Remarkably, Gorilla Asia hung on for almost a full year from the Jimmy Liew article to Sean Clarke's talk with a handful of IandI events throughout the year. Eventually Gorilla Asia went under, one of many dot com casualties.

Author’s Note: The data quoted within this article is anywhere from one year to fifteen years old. Therefore, extrapolate at standard Internet growth rates. The views expressed in my blog(s) are my personal opinions, have not been reviewed or authorised by my employer and do not necessarily represent the views of my employer.

What is the typical exit strategy for an Internet porn entrepreneur? “There isn’t one,” quipped Sean Clarke, the Chief Technology Officer for Hong Kong-based Whoopers Network at IandI on Thursday, November 8. Once established, a successful online porn site can pull in $ US 10,000/month in profits with a regular flow of fresh, new content and less than ten staff.

The statistics are staggering. As long ago as 1998 Forrester Research estimated the Internet pornography industry to be as large as $41 billion USD. A two-year survey from Alexa Research revealed that, sure enough and no surprise, “sex” is the most searched word on the Internet. Also in the top twenty most coveted words are: Porn, (4th most popular including ‘porno’ and ‘pornography’), nude(s), xxx, Playboy, erotic stories and erotica. Playboy is the most sought after media property. There are anywhere from 50,000 to 300,000 porn web sites world wide depending on what you classify as a full blown porn site. At least three of the largest sites (in reality a network of urls) each have net incomes in excess of $ 100 million USD per year. From there an additional several dozen big players see net incomes of around $2 million USD/month and the next tier of players are pulling in revenues of only $12 million per year. Whether you like it or not, sex sells.

And also, whether you like it or not, surfers visit web sites in droves. For example:
  1. SexTracker, a service that monitors 26,000 adult sites maintain that 60 million unique visitors surf to porn sites every day.
  2. A March 2000 Zogby International and Focus on the Family study of over 1,000 American adult internet users found that 20% of them admitted to visiting sites with sexually oriented content. That translates into 40 million American adults visiting pornographic sites.
  3. Last year Nielsen Net ratings reported that in January 2000, 17.5 million surfers visited porn sites from their homes.
  4. Playboy’s website, which offers free teaser shots of its Playmates, averages 5 million hits per day.
  5. NetAngel.com claims that 80% of the Internet’s content is pornographic. Newsweek claims 30%.
  6. One year ago web-audience measurement firm NetValue reported that in September 2000, children spent 64% more time on porn sites than they did on games sites. In the same study it was found that 27.5% of children age 17 and under visited an adult web site. That represents 3 million unique underage visitors. Of these minors, 21.2 percent were 14 or younger and 40.2 percent were female.
  7. NetValue also reports that 40 per cent of the one million active Internet users in Hong Kong look at online porn at least once a month – one-third of those visitors are women.
Like any set of Internet statistics the numbers on pornography vary widely. However, there is one clear fact about Internet porn: it makes money. But most people fail to realize it takes tremendous resources and problem solving skills to pull in the kind of cash loosely written above, and that was Sean’s message at IandI.

While the jokes and laughs flew wildly that night, Sean gave an insightful talk into the professional, commercial and ethical issues associated with online porn. (IandIers were distraught to discover no PowerPoint presentation.) Sean spoke moderately about the statistics, taking neither extreme, and thus gained credibility with the IandI crowd. With a background rich in business and technology, Sean’s porn business experience stems primarily from Whoopers Network, a company initially in the online sex toys trade and now also in the online porn trade. Whoopers encountered many of these issues Sean highlighted after deciding to add online porn to their sex portfolio. (Whoopers parent company, Beacon Light Holding Corporation (Nasdaq Pink Sheets: BLHG), slipped in the backdoor of NASDAQ after taking hold of a defunct mining company.) Whoopers Network’s business is truly global with interests stretching from head office in Hong Kong to studios in Europe to its target market in North America.

To begin with, Sean agreed “There is a lot of disagreement as to how many porn sites are out there” but confirmed that a select few big players dominate the industry. To play in the bottom end of the big player league a horny entrepreneur needs $1 million USD according to the experts, but Sean says this number is inaccurate and $2 million USD is requisite to get established. “It must be very cut throat,” I suggested, but Sean said no, instead explaining that the industry is extremely competitive mainly because of the sheer volume that the major players carry on the net. Even if a start-up site had the requisite $2 million dollars to become established, staying positioned in the top search engines would be virtually impossible – they are already well saturated with the big players. “With all this porn out there it is estimated that adult ecommerce will be worth US$30 billion by 2003,” claimed Sean. A modest estimate compared to Forrester’s $41 billion.

In the beginning there were very few players and start-up costs were much lower. Today those players have grown to be the industry giants like Adultshop.com, CyberErotica, and Python Communications. Sean claimed that much of the Internet’s explosive growth can be attributed to the online pornographic industry. For example, “numerous internet technologies that mainstream business rely on such as video teleconferencing, streaming video and audio, compression and real-time credit card transactions can trace their origins to the porn pioneers pushing the technology forward,” explained Sean. He continued by predicting “broadband and Peer to Peer technologies will be the next to benefit as people realize they can get more porn if they use these technologies.”

However, don’t be discouraged by the big players pushing expensive new technologies and dominating the industry. The giants encourage little players since it spreads there own network further and further through affiliate type programs. Therefore, porn could still be the land of opportunity for would-be entrepreneurs. Sign on with the giants as an associate or affiliate and you will be provided “with everything from free content to free hosting that pay you handsome commissions to set up your own porn business, because you will be promoting their massive porn empires,” a persuasive Sean described. Just as the IandI audience saw visions of cash dancing in their heads, hopes were manically dashed when Sean continued. “To make any real money you need to be a marketing genius, devote long hours to submitting your site to search engines, Thumb Nail Posts (TGPs), Toplists and anywhere else that you might get a little bit of traffic from. Then once you have some traffic you need to filter it, trade it and funnel it,” he said. This would probably earn you a few extra thousand US dollars a month.

Sean proposed that attempting to compete with the big boys, to earn the kind of cash cited at the beginning of this article, requires lots of the following:
  1. Money, expertise, time and patience
  2. Lots and lots of really good, fresh content
  3. Secure, reliable, huge and super fast bandwidth
  4. Expensive marketing (prepare to spend to promote)
That same entrepreneur can expect to encounter any one of the following problems if not all of them simultaneously.
  1. Stolen bandwidth from links directly to your budding porn site
  2. Stolen content, therefore your servers must be heavily safeguarded
  3. Licensing restrictions
  4. Lack of fresh content
  5. Ethical issues (For example, VC’s know that porn is profitable but they still resist for ethical reasons and in Hong Kong Whoopers Network has had problems enticing new employees to join a porn company.)
  6. Legal issues (If you are going to promote bestiality there are many jurisdictions you can easily get into plenty of legal trouble. Sean joked that “NA” – as in North America – means “No Animals” in the porn industry.)
Sean issued one final note of caution to anyone venturing into the online porn industry from a provider perspective – there is a big difference between a establishing a successful porn site and successful porn business. Yes, there is money to be earned but as each day passes it becomes a tougher and tougher industry. A good resource to learn more can be found at AVNonline.com. (AVN = Adult Video Network.)

If you have any doubts about the ethical side of the business consider the following tidbit of information provided by Sean at the end of his talk. According to Sean, the Mormon Church owns a US hotel chain earning hundreds of millions of US dollars per year from in-room adult entertainment sex channels.

The IandIers perked up again… like it or not, sex sells.

Tuesday, December 19, 2000

A Call For Tech Leadership in Hong Kong

‘Hong Kong Internet community needs more leaders’ – says Jimmy Liew, Director of Finance, mConverge.com.

When cornered at I and I Asia on Thursday, December 14th about what message he wanted to send out to the Hong Kong Internet community, I half expected speaker Jimmy Liew, Director of Finance, mConverge.com, to say something like, “The future’s so bright you better wear wireless.” After all, his optimistic talk at Tech Pacific Labs would have left skeptics frowning and Internet technology idealists swooning. But instead Liew’s answer surprised me: “My message? We need more Hong Kong Internet leadership.” Not that I at all disagree with Liew – quite the contrary I agree with him wholeheartedly. It’s just that Liew never mentioned it in his talk. When queried to comment more about Hong Kong Internet leadership, Liew responded with: “Hong Kong entrepreneurs can’t sit around and follow I-mode all the time – we have to be our own I-mode.”

Liew’s talk at I and I never touched on leadership until questioned afterwards. Instead he painted a glowing report not just of the future of wireless in Asia but of Asian economies in 2001, which Liew claims, based on data from The Economist, will enjoy over 6% growth. Global demand for wireless technologies is expected to surpass one billion users in the next several years. Where will this demand be appropriated? 40 – 50% of the demand will come from Asia. Therefore, Liew says, “the demand for wireless applications is going to be in Asia” riding the coattails of wireless demand in general.

What could be problematic, however, is Asia’s cellular divide. According to the Economist and WirelessAsia, highly developed Asian countries such as Japan, Singapore, Hong Kong, Australia, Taiwan and South Korea are the “Cellular Rich.” These countries have an average GDP/capita of $23,000 USD and 40 to 80% cellular penetration. At the other end of the scale sit the “Potentially Cellular Rich,” a term Liew used to be socially sensitive and correct. These countries boast 1/60th of their rich brother’s GDP/capita and average cellular penetration of 5 to 7%. Between the two extremes sit Malaysia and Thailand, both of which are likely to join the Asian Cellular Elite in the not too distant future.

Liew sees wireless markets split into three distinct groups. First, their will be Content Aggregators that Liew claims will require too much hard work for too little money. Indeed, making money from content has yet to be truly mastered. Second, is Outsourcing Work. Again, since outsourcing is not scalable, the margins and value created in this sector will be thin. Finally, there will be the Applications and Enterprise Products that Liew claims is where the real value and money is to be made in wireless.

What advice does Liew offer to start-up entrepreneurs?

First, avoid being too idealistic. Instead drill down deep and often into the minutiae. All too often entrepreneurs get caught up in their vision and lose sight of day-to-day reality. (See Edelman comments on Internet vision.) “If you want to be a successful start-up company, you have to pay attention to the details,” says Liew. This includes both soft and hard details ranging from technology to money to culture.

Second, watch out for being a “jack of all trades” or in this case a jack of many industries. Start-up entrepreneurs tend to want to conquer the world in a single blow and end up failing in the one area they could have excelled. Liew offers good advise when he says, “in order to be competitive, when you’re small you need to concentrate like hell on one industry.”

Third, Liew reminds start-up entrepreneurs of some basic MBA advice: “don’t put all your eggs in one basket.” Therefore, don’t count on one customer to provide this week’s order. Don’t count on one VC to “be the one” that finances unless the money is in the bank. And finally, don’t count on one product to make you successful – eventually the entrepreneur needs to innovate and diversify.

As for Liew’s own ambitions, mConverge.com’s “mPort” product (which stands for mobile POrtfolio Reporting and Trading) aims to “put the fund manager’s tools at your finger tips” via PDA. Marketing through brokerage companies with a desire to have wireless trading, mConverge.com plans to master Hong Kong, expand to Singapore, Korea and eventually take on Japan.

In follow-up discussions, Liew expanded on what he meant by Hong Kong needing more Internet leadership. Liew said, "Hong Kong entrepreneurs can't sit around anymore looking to Silicon Valley or to Japan's I-mode for new ideas. We have to start thinking for ourselves. There is absolutely no reason why Hong Kong shouldn't be taking the lead role in launching innovative wireless products. We have one of the most competitive telecom markets – couple that with a stock market holding the second highest market capitalization in Asia. I'm betting there will be (and should be) some great wireless financial applications launched here. We must shed our current mentality of trying to be ‘fast followers’ and instead become global leaders."

Thursday, November 16, 2000

New Economy Management: Creativity Is King

Speaking at an American Chamber of Commerce Leadership Series Luncheon on November 16th, Robert Iger, President and Chief Operating Officer of Walt Disney Corporation, hailed creativity as the source of Walt Disney’s achievements. “Disney bases its success on the nurturing of creativity and never doubts the awesome potential and inspiration of the creative idea,” Iger explained during his highly animated and colorful yet cautious forty-minute luncheon speech. Attendees were treated to an original black and white clip of Walt Disney himself explaining, “Never lose sight of one thing… it was all started by a mouse.”

The lesson? Simple – creativity and vision are essential for any company moving forward into the future. They are also two values mastered by Walt Disney. Walt Disney, often held up as one of the first Old Economy companies successfully transitioning into the New Economy, is also a company that tugs at the heartstrings of almost any person old or young enough to read this article. Mickey Mouse and all of his friends have a magic touch, requiring little effort to softly inspire even the most hardened captains of industry. At the essence of that irony lays the spirit of The New Economy.

Iger explained that in his business, “Content is King” and Disney is the savoir-faire of content. Recent successes include Disney’s newest movie, Dinosaur, already exceeding $350 Million USD in earnings. According to Iger, Disney’s family oriented web sites, Disney.com and Family.com, are number one in their field. Disney’s sport site, ESPN.com is the number one visited sport site in the world, and ABC.com is currently the fastest growing news site in the world. Iger explains that it is hard to make the Internet work commercially when it comes to content and that creativity lies at the heart of content’s success.

No one could possibly doubt Iger’s words about the Internet being challenging for media to master. Since 1995, Walt Disney’s share price the company has had its fair share of ups and downs.

Even worse, however, is the Disney Internet Group (DIG.) (http://www.dig.com) DIG is home to some of the fastest growing, hottest web sites including ESPN.com, Family.com, GO.com, Movies.com, Mr. Showbiz, NASCAR Online and NBA.com to name a few. The colder side of the business equation has DIG spinning off from Disney in late 1999. DIG debuted near $35 USD per share and has gone straight down ever since. At time of writing DIG is well below $ 6.00 USD. Despite such dismal stock performance if any company is going to succeed with content on the Internet it will be Disney and while the stock performance may not be immediately evident, Disney is positioned to come back strong. (On November 22nd Bear Stearns reiterated coverage of DIG as “Attractive” with a price target of $15 USD.) Disney on whole is still a fantastically successful company with a huge history of growth – ten years ago Disney’s stock traded below $10 USD.

What makes DIS successful?

Creativity, which is an important business characteristic to possess. Creativity, also known as innovation, is the only source of sustained business growth. Without creativity new products and services will never be invented, and existing products and services will eventually die at the end of their life cycle.

How does Disney sustain and nurture creativity?

First, the company has a practice of granting an audience to any individual within the organization, regardless of rank or file, who has an idea for a film. In fact, the concept for Dinosaur was born in the much same fashion with the movie’s idea coming from within the company. Therefore, there are no apparent barriers to presenting creative ideas. An employee’s idea may not always be accepted, but management will always listen.

Second, Disney practices what it calls “Imagineering” where teams of people constantly brainstorm and innovate for new theme park ideas.

Third, Disney is a fun place to work, with creativity and fun being at the heart of the company’s activities. Even traditionally formal management meetings, where serious issues may be discussed, will be conducted with an element of lightness and style employees have come to know and love as the heart and soul of Disney. (Sounds very much like the latest management styles creeping out of Silicon Valley, doesn’t it?)

Finally, Disney gives its employees challenges and autonomy. Many of the creative ideas Disney pursues present impressively difficult engineering, logistical and theatrical problems. Disney, however, trusts its employees to achieve the impossible and they always do.

Disney invests heavily in its people, to insure they have the skills required to achieve the impossible. For example, the local Walt Disney theme park underway in Hong Kong will generate 18,000 jobs at the project’s commencement and 36,000 jobs by completion in 2005. Walt Disney Hong Kong employees will undergo intensive training, for some this training will take place overseas, to guarantee that staff has the necessary competencies to succeed. Iger explained how Disney believes “the creative idea is only as good as the talent to execute locally.”

Creativity aside, however, one could not help but notice Iger’s guarded responses to audience questions. No one asked about the environmental implications of Disney’s local theme park project nor raised the issue that the project is expected to kill off the few remaining rare Pink Dolphins swimming in Hong Kong waters. Neither did anyone suggest that Disney may have a difficult time sustaining visitors following the initial honeymoon phase.

When asked how Disney, a large, global company, balances creativity with bureaucracy, Iger quickly replied that at most companies, bureaucracy usually wins. However, Iger optimistically said that at Disney, where creativity has been prolifically instilled into the organization’s culture, creativity usually wins. Iger continued by saying that the challenge was to maintain a decentralized, entrepreneurial spirit. In fact, the only thing Disney centralizes is its brands.

Critics might argue that Disney takes its brands too far. For example, Disney employees are forbidden to break costume in front of “guests.” The motto being “the dream must never be broken.” It will be interesting to see whether or not Hong Kong employees are able to sustain 40 degree C heat inside Mickey Mouse, the companies leading brand!

Regardless of the skeptics, Disney stands at the gateway to the New Economy, with both new Internet groups and old business units strategically situated for the future. Fostering an environment of creativity is an imperative for both Old and New Economy companies. Maintain a light and fun management style and empower your employees with big challenges and plenty of responsibility. While Iger neglected to talk about strategic partnerships, he acknowledged that creativity is not just an internal phenomenon. Creativity requires being open to the ideas of all people, both internal and external, because “no one company or culture has a monopoly on creativity.”

Disney might be a mammoth, global company, but its success lies in its ability to unleash the creative idea and fight off the very evil of its own size. Even Iger acknowledges that Disney is rich with such dichotomies when he says “What self respecting global company would be willing to be represented by a rodent?” The answer is obviously Disney and regardless of how hot its get inside a costume, never doubt the inspirational power that mouse has on employees. That’s creativity – that’s vision – and that’s The New Economy.

Friday, October 27, 2000

Dot Com Decline a Function of Marketing Disconnect

Richard Edelman, CEO of reputable Edelman Public Relations Worldwide, blames Dot Com woes of the past nine months on conventional marketing. In the last several years Edelman has been at the nucleus of Dot Com activity, effectively raising the profiles of numerous New Economy companies including the launch of Bluetooth and Microsoft’s Encarta. Speaking at an American Chamber of Commerce lunch on October 23rd, Edelman provided an insightful, compelling perspective on the current Dot Com state of affairs, pointing the finger at his own industry and investment bankers for failing to self-regulate.

Edelman’s formula for Dot Com Victory:

Dot Coms failed miserably with execution and establishing credibility, but vision they had. Internet companies arrived on the scene “focused on conventional marketing after having a huge vision of making a difference,” Edelman explained. He argued that conventional marketing could never have executed the mighty vision Internet companies had in theirs sights. Most Internet companies spent 50% - 70% of their available cash on traditional marketing techniques, and 85% of that cash on advertising, which “was the wrong thing to do,” Edelman claimed, and a complete waste of money.

Edelman sited numerous statistics and anecdotes that demonstrated the merciless beating Dot Coms have received during 2000. He offered up an equal number of statistics and stories illustrating how ineffective Dot Coms had been at marketing.

For example, during the 2000 Super Bowl, the average commercial cost $ 2.5 million USD for thirty seconds of network time. Despite the flashy, sexy advertisements that always grace television networks during the Super Bowl, not one of this year’s commercials received higher than a 7% recall when tested after the highly hyped annual American football event. In addition, Edelemn explained, everyone in the industry knows that Super Bowl commercials are the most expensive to produce, most expensive to buy airtime for, and repeatedly produce low recall. Edelmen criticized his industry harshly (more than once) by saying such flagrant mis-direction of Dot Com cash was a “huge condemnation of (my) colleagues commitment to their industry.”

Moreover, the Dot Com Craze took place in a highly hyped, loud environment. Edelman cautioned that the marketing methods used by Dot Coms never work in a loud marketing environment. In a loud, hyped environment a business (1) cannot buy customers (2) cannot promise the world (3) cannot saturate its competitive advantage and (4) cannot build a business based on hype. Successful companies that survived the boom did so by generating positive customer experiences that created authentic marketing buzz – such as E-Bay and Flooz.Com. Flooz.Com pioneered on-line gift giving, establishing a reputation based on creating value, public relations and viral marketing. Flooz, who never advertised, instead used Whoopi Goldberg as a spokesperson. They also never went public, which probably helped them stay alive, Edelman noted.

The hype and loud environment contributed to a mass hysteria that the Internet revolution would be over before anyone knew what hit them. As a result, Edelman explained how marketing efforts were “done on the basis this revolution was all happening in five minutes” with a terrible mis-use of Dot Com cash. Edelman pointed the finger at investment bankers for allowing companies to go public too soon at unrealistic valuations and with unrealistic marketing and business plans. Edelman explained how Dot Coms hired three types of experts: Web Designers, Investment Bankers and Advertising Agencies. The latter two, Edelman chastised, “was like putting the wolf in the chicken coup… (and) the public relations industry defaulted to the easy way out by allowing the hype notion and deifying CEOs.” Edelman believes that in the end, individual investors are the ones who have suffered.

Now, with failed Dot Coms, and surviving Internet companies holding perilous cash positions, the world is currently witnessing scrutiny in the capital markets and skepticism in the eye of the stakeholder. What do Dot Coms now do and how do they build a brand?

Return to Value

Dot Coms need to return to value and focus on Edelman’s above formula. First, if a pure play Internet Company currently has no bricks and mortar component in its business model, either build one fast or find an Old Economy partner. (Preferably the latter.) Also, stop and ask yourselves, “Are we really spending our money on the right things?”

Edelman provided the following excellent tips:
  1. Dot Coms need to differentiate with a clear, competitive message.
  2. Back-up your plan with a pragmatic, clear path to profitability.
  3. Refresh your story often, but remain consistent.
  4. Develop Third Party advocates who can support/endorse you.
  5. Address issues before they become a crisis. (Doubleclick lost 90% of its value in one year because they were conceited and failed to address obvious customer issues, claims Edelman.)
  6. Never hide from bad news – get in front, and in control of, a downward spiral.
  7. “Get out there, be believable, be everywhere” with employees and customers. CEOs, CMOs and CTOs need to be the chief communicators but Edelman cautions about attempting to brand/deify a CEO. In the long term that rarely works because the CEO will be vilified if the pendulum swings against the company, which the market is seeing right now. Get a spokesperson or celebrity instead.
  8. Align your company with “Six Pack” innovators such as ASP, broadband, and wireless solutions providers. Infrastructure is hot and will continue to be reports Edelman.
  9. Create online promotions with a public relations tie in.
  10. “Guerilla and viral marketing cannot be overlooked,” says Edelman. These marketing strategies create the most compelling force for people to visit a web site.
Edelman claims that public relations firms have the potential to provide tremendous value while the market regains confidence. Edelman concluded by saying, “the press is like the scorned lover” with Dot Com Death stories being over hyped as much as the success stories were. Therefore, take everything in stride and focus on value.

Monday, October 23, 2000

Clear, Unambiguous Communication the First Key to Success

New Economy Management: Clear, Unambiguous Communication the First Key to Success ~ Charles Caldwell, Asia Pacific HR Director for Rockwell Automation, provides a series of management concepts for individuals looking to develop their management and business skills in The New Economy.

Communication is certainly no new concept; in fact it is just plain common sense. As Dilbert comically drives home it should come as no surprise for people to learn that common sense can be quite uncommon. People with more and more business experience realize this, too. Throughout this article I have emphasized the differences between Old and New Economy communication styles so that managers can be more effective in motivating employees and producing results in a New Economy environment.

Clear, Unambiguous Communication


In both Old and New Economies communication stands at the top of the list as a key management skill. Despite this, it is amazing how terrible some managers’ communication skills are, which as a result, leaves many people paying lip service to communication. Managers might say that communication is important, but all too often management actions fail to demonstrate the importance of communication. Conversely, management sometimes communicates too much, or too many messages that leave employees confused and possibly not listening at all. “ ‘Avoiding The Internet No Longer An Option’ – Michael Dell” provides a good description of this issue.

In the Old Economy employees were tolerant of poor communication. In the New Economy, with corporate clock speeds moving faster and faster, there is no room for poor communication – the cost is just too great. Employees know this and are less likely to tolerate communication inaction.

What exactly do I mean by “Clear and Unambiguous Communication?” Clear means comprehensive and understandable messages that make sense. Unambiguous means leaving no opportunity for multiple meanings to be derived from one message. Remember that it always helps to communicate lots, and check to make sure your messages have been received loud and clear. I might add at this point that stakeholders (managers, shareholders, investors, etc.) hate surprises that regular communication could avoid.

In the New Economy style of communication plays a bigger role than it did in The Old Economy. Traditionally, Old Economy managers have had the luxury of managing by fear and intimidation and leaving employees in the dark. This modus operandae is no longer acceptable. Management is now expected to empower employees, keep them informed and be polite. This does not mean that managers need to be any less rigorous in what they demand from employees. If anything New Economy employees are expected to produce more than before to demonstrate their worth to the company – the social contract is broken and employment for life is no longer a given.

The above criticism of the Old Economy does mean that Old Economy managers have been failing in the task of communication. Many Old Economy managers are outstanding, empowering leaders. However, the New Economy is establishing a New World Order and everyone has a lot to learn about empowering, motivating and retaining talent in the new order of things. (Stay tuned for an upcoming story on The War for Talent.) Communication and management styles play a big part in the New World Order.

For example, in the Old Economy, employees were typically shielded from confidential information. How many times have you heard a manager say, “This I confidential,” and that specific information should be withheld from certain individuals? Yes, certain matters are still confidential, but the majority of information once held, as privy to management, is no longer private. Recall countless stories of employees openly sharing their salaries, which would have been unheard of in an Old Economy setting.

There are two repercussions of this New Economy style of communication. First, management is expected to be much more forthcoming with information, and communicate that information in an empowering, motivating fashion. Second, people are expected to be mature about handling and reacting to sensitive information. This speaks directly to the shift towards “personal responsibility” that is becoming more and more common in employee attitudes. The good news is that employees will manage their reactions to difficult situations. The bad news is that employees will also manage their own careers. If employees dislike the way management conducts business, or feel demeaned by dis-empowering management or communication styles – they’ll leave.

In the New Economy, increasing the level of communication is not good enough. Management needs to elevate the level and style of communication to an entirely new level. As the attached figure illustrates, this involves communicating upward to stakeholders, sideways to partners and alliances, and downward throughout the organization. The New Economy requires a paradigm shift and when it comes to New Economy Management clear unambiguous communication is the first key to success.

Saturday, October 07, 2000

What Value Do My Customers Add?

New Economy Management: What Value Do My Customers Add? ~ Charles Caldwell, Asia Pacific HR Director for Rockwell Automation, provides a series of management concepts for individuals looking to develop their management and business skills in The New Economy.

The New Economy focuses on customers, propels the customer experience to a whole new paradigm and seeks ways for customers themselves to add value. One must ask, “What value do my customers add?” because mastering the customer’s role in the value creation chain can be the ultimate competitive weapon for a new start-up, or Old Economy company transitioning into e-business. Here are some examples of how customers add value.

Proctor & Gamble: P & G claims that customers account for 13% of the value created in a supermarket. Goods sit on shelves and the customers provide labor by walking through the aisles selecting products. If the customer spends too long in the store, the cost of that labor increases. Therefore, well-planned layouts make the shopping experience aesthetically pleasing and logistically easy for the customer to maximize the value impact and keep the labor cost low. Lesson: P & G relates to the customer as if they part of the value chain.

Ford Motor Company: In the 1980s Ford launched the Ford Taurus car, a hugely successful product even to this day. Part of the Taurus success came from value provided by customers. First, Ford invited customers to help design the car from an ergonomic and performance perspective. Second, once Taurus was built, Ford continued soliciting feedback from customers as the Taurus evolved. Lesson: listen to customers and let them add value throughout a product’s life cycle.

New Economy companies have quickly grasped the concept of customer value creation. Using technology, the value created by customers rises to a whole new level.

LEGO Mindstorms: LEGO provides the example of an Old Economy company venturing into New Economy territory. LEGO management astutely concluded that toy robotics were the future of their cash-cow toy line. In 1998, LEGO released a robotic version of the LEGO toy icon called Mindstorms, 15 years in the making with MIT. Within days young techies reverse engineered their way into Mindstorms’ proprietary operating system, posting detailed plans of how the robots worked all over the Internet.

LEGO management could have reacted the wrong way. (Insiders claim that LEGO management did, in fact go nuts, threatening with legal action.) Customers, naturally, would have objected strongly to this kind of reaction. After all, from the customers’ perspective, they were adding value to the product.

LEGO, however, pulled a rabbit out of the hat. They opted to make their software open technology, orienting their web site to encourage the sharing of LEGO Mindstorms developments. Could anyone have predicted what happened next? Mindstorms reached cult status with young customers and adults adding extraordinary value to the robotic toy’s development. (Apparently adults make-up more than more than half of LEGO Mindstorms’ users.) Essentially, all over the world thousands of budding software engineers voluntarily develop software for LEGO Mindstorms. That’s called customers creating value, and it’s paying off big time for LEGO. (http://mindstorms.lego.com) Linux technology is another example.

E-Bay: E-Bay is the ultimate model of value creation: the customers do everything while E-Bay provides the framework. Customers provide products to be sold, product pricing, even feedback on how E-Bay can improve – what they really provide feedback on is how the customers can create more value! At every step of E-Bay’s business model the customer sits at the nucleus of both creating the E-Bay model and adding value to the E-Bay model. That’s hard to beat.

Another element to Internet business models the likes of E-Bay and Amazon.Com is the customer’s role in providing instant feedback through technology. Sony’s Pet Dog can be web-enabled, which is pretty exciting and fun for the customer. More importantly, every time a customer plays with the pet via the Internet, Sony finds out what the pet is doing, what it did yesterday, and the day before that, too. This feedback means the customer’s actions add value and allow Sony to respond to what customers like best about the product. No wonder those metal dogs sell for $2,500 USD and Sony can’t keep up with demand! Therefore, technology, and especially web-enabled technologies, plays a big part in customers creating value.

The Lesson? Figure out how your customers add value and spend a lot of timing enriching that aspect of your company. Supporting this value creation must be a strategic focus towards the customer to lock-in customer loyalty. (Example: E~Bay soliciting customers for ways to improve E~Bay’s service.) The following questions and matrix can assist people with determining how customers can become (or already are) part of the value creation chain.
  1. How does the customer use my product or service?
  2. How can the customer’s use of the product add value?
  3. How can Internet or on-line technologies be incorporated into the customer experience? What value would this add?
  4. Is there an opportunity for the customer to provide feedback on the product/service?
The name of the game is to identify unpredictable sources of value creation that the customer can provide.

Thursday, September 28, 2000

Michael Dell: “Avoiding the Internet no longer an option.”

According to a new “e-census” conducted by the University of Texas only a handful of today’s businesses scratch beneath the surface to use the full potential of Internet technologies. Michael Dell, speaking at Wednesday’s American Chamber of Commerce Leadership Series in Hong Kong, says that’s not good enough. Avoiding the Internet is “no longer an option”. Using online technologies, according to Dell, makes companies more efficient, removes the friction of traditional business methods and increases the velocity of business. Dell’s message was familiar: get into e-business or you’ll be out of business. With over $ 50 Million USD being conducted per day at Dell.com, Michael Dell knows something about e-business, too.

Everyone knows Michael Dell (in fact I am adding value to one of his computers right now), at the helm of Dell Computers, a company sixteen years old that this year will surpass $33 billion USD in revenues. Worldwide the company has 12% market share (5% in Asia Pacific) and an ROI of 294% that Dell claims comes as a result of integrating the Internet into business. Dell is one of the pioneers of integrating suppliers, customers and the Internet into one chain. The company is on a torrential growth path, and judging by Michael Dell’s wit and passion at Wednesday’s AmCham lunch, there is no end in site.

Creativity lies at the source of all sustained growth. That is a philosophy Dell believes in, too. Dell attributes his company’s success to being a disruptive innovator, claiming his company has been “draining industry profit pools towards more productive means” from the beginning. (At one point Dell quipped, “in fact, we’ve been assisting IBM with the decline of their PC revenues,” as if to suggest Big Blue had hired Dell to do the job!) Dell added that open architecture always wins in the end, even if proprietary technology looks more attractive in the beginning. But the future of the personal computer is intact, for the time being anyway, since Dell claims, “the Internet is only as powerful as the device it gets delivered on.”

So, what is the future according to Dell? Michael Dell claims that wireless technologies and storage are the way of the future. Dell even went so far as to say “the biggest beneficiaries of wireless will be Dell Computers.” Dell explained how wireless data networks pose a tremendous opportunity that will pave the way for VOIP and drive traditional phones to extinction.

“But what about PDAs?” Dell asked the audience, to which he quickly responded that PDAs are extensions of PCs… “Personal computers are not going away.” (So much for my Kiss Your PC Good-Bye Article!)

Managing a company of Dell’s size must be tough in such a rapidly changing environment, especially when the company hired 10,000 staff in the last year alone. To this Dell offered excellent advice for managers and leaders needing to communicate business strategy to their organizations. First, there are plenty of messages to deliver to an organization but prudent leaders only select one or two most important communications. Otherwise employees will hear too many confusing and possibly conflicting messages that could too easily be reduced to the “flavor of the month.” Second, the top messages should capture and focus on the company’s strategy, goals and vision for the year. Third, reflect and reinforce these messages in all management actions. Finally, acclimate employees to new things and change while delivering the top messages.

Responding to the question, “How can Hong Kong become a regional and global leader in e-business,” Dell offered the following advice.

First, focus on education because the educational system is the feeder system for any society’s future. Dell advocated teaching children computer and Internet skills at a very young age, and making the absolute best technology available for those involved in higher education.

Second, “drive as many methods as possible to the technology.” In other words, make the Internet and all related technologies easily accessible. This includes shaving down the cost of access as low as possible to make Internet technologies available to all socio-economic levels of society plus heavy private and public sector investment in infrastructure. Dell even proposed public access to the Internet to increase availability for those who find the Internet out of reach despite society’s efforts to reduce costs.

Finally, Dell emphasized the importance of a “continuous learning approach.” With rapidly changing technology, society needs to be oriented around change with a willingness to learn about the next wave of technology.

Dell’s speech was compelling, refreshing and with 33% growth and 294% ROI, I’d probably be that happy, too! The luncheon speaker also took a moment to acknowledge four Asian companies Dell had invested in: Sina.com, TurboLinux.com, TechPacific.Com and iLink.net.

Monday, August 28, 2000

The New Economy: Take Back the Night at IandI

It's time to take back the night at IandI. The little community that grew has vision and lots of it... all the vision of "the growth of the Internet Industry in Asia!" But it lacks something, it lacks real leadership from you and me. IandI provides us with the vision and now our leadership role starts with action. In the New Economy vision is a given. If you don't have vision, it's over, so action is where it's at. It's up to us to get into action at IandI. It's up to us to get people to shut up.

I have now been attending IandI for just over one year, where I have been making observaions. IandI is like a laboratory -- a microcosm of the Hong Kong Internet scene. Otherwise it wouldn't attract the people it does, especially on big-ticket nights like August 24, when Matei Mihalca, VP Asia Pacific Internet Research, Merrill Lynch spoke. It was the "Who's Who" of Hong Kong Internet entrepreneurs sprinkled around the room. However I have repeatedly observed at IandI people talking during the speakers' presentations. A trivial issue, one might think, but every week, all the time, people disturb the event by talking -- and it's telling of Hong Kong.

I am not talking about quiet whispers in the back of the room, either. I am talking about loud, disruptive conversations. The people who contribute to this are downright rude, insensitive and selfish. Some evenings it is impossible to hear the speakers, who have taken valuable time out of their lives to share ideas, yet people sit there and take it! Every week us, attendees at IandI, contribute to this behavior by tolerating the offending parties. That's absurd -- this is our Internet community. The organizers of IandI have attempted to tackle this issue and I am calling on the community to help them out. I assert that the problem is a symptom of the Hong Kong Internet community's lack of real leadership. We need to demonstrate our own leadership and initiative to help IandI resolve this issue.

People talking at the back of the room demonstrate indifference towards IandI's vision and the speakers' ideas. I can only conclude that these people feel IandI's vision to be subservient to their own self-important agendas. Yes, part of IandI's purpose is to network, but at least have the courtesy to take your conversation into the lobby. When I see so much disregard for attendees sincerely trying to gain value from a speaker's ideas, it tells me the Hong Kong Internet scene has a serious respect problem. Why bother attending IandI if you have no intention of listening to the speakers? To serve your own self-interest? To be seen? Please grow up. How do you know that some member of the audience might not be the one holding the purse strings for your startup or your next job? If there is going to be any real progress in this Internet community we had better start thinking "Win-Win, and that we're on the same team. When the back-of-the-room pests chat up a storm at IandI they're destroying the team, never mind just plain ruining the event for everyone else.

Some might say IandI is hardly telling of Hong Kong's Internet community. Some might say plenty of movers and shakers consider IandI small potatoes. My reply is that that's exactly the problem. We've got a superiority complex running rampant in Hong Kong. Elitist entrepreneurs who think they don't need IandI don't understand the New Economy. The New Economy removes barriers and makes people accessible, so that everyone can share ideas. Exhibit A: Robert Owen of techpacific.com (who frequents IandI while other Hong Kong leaders are conspicuously absent) is highly accessible. How often does that happen with a man of his stature in the Old Economy? IandI provides that type of environment. Heavy-hitter sponsors and IandI's rapid global expansion acknowledge the value of that environment. Discourteous people talking at the back of the room undermine it.

To those of you who sit there and take it: don't! If you plan to be a leader in the New Economy, don't sit around waiting for things to happen. Make things happen. Don't sit around hoping people will be quiet this week. Make them be quiet. Support the IandI organizers when they try to silence people and don't wait for them to do something if you hear people talking. It's time to pull together as a team and demonstrate some real leadership. It's time to take back the night at IandI.

Tuesday, August 15, 2000

The New Economy: The Big Picture

The article below first appeared online at Gorilla Asia in August 2000. Since then Gorilla Asia went under, as did many tech initiatives during the Dot Com Bomb. Gorilla Asia hung in there until the end, the very end, and I still receive requests to read my articles from that era. I list them here on my blog to satisfy those requests.

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Charles Caldwell goes public with his bi-weekly thoughts on management and leadership in the New Economy. If you are an entrepreneur launching an Internet or technology company in Asia, or even if you just desire to learn more about leadership and management in the New Economy, then stay tuned for critical skills and concepts you need to understand.

If you want to make it as an entrepreneur in Asia you better understand exactly what The New Economy is. Let’s pull back several thousands miles so that the entire planet, not just Asia, sits inside the Big Picture. All around the world Internet and leading edge technology companies are pioneering a revolution akin to the invention of electricity and unprecedented since the days of the Industrial Revolution. Everyone calls this phenomenon “The New Economy” and everyone could not be more wrong. The Internet is not The New Economy. Anyone who wants to make it in The New Economic World Order better understand this notion or risk being left behind in the wake of the New Economy pioneers.

To illustrate this divide between the Internet Age and The New Economy, in March 2000 I wrote an article on Gorilla Asia entitled “Can Hong Kong Duplicate Silicon Valley?” In that article one of the ideas I argue is that Silicon Valley is not about the Internet – it is about a way of doing business. For example, in Silicon Valley people understand that to promote a new company or an emerging technology, competitors may need to join forces and create an alliance. This is called “co-opetition.” This is not necessarily a new concept in the business world, but Silicon Valleyites are much more prone to strike these competitive alliances because that’s one of their ways of doing business. Right now Internet and technology companies happen to be the dominant content currently fueling Silicon Valley’s way of doing business. So, too, works The New Economy, which even goes beyond being a way of doing business – The New Economy is a philosophy.

To deepen this distinction we need to look at some of the major themes driving The New Economy. First, The New Economy is oriented around “Customer Paradigm-ed Companies.” In other words, outwardly looking companies that live in their customer’s paradigm, determining exactly what customer’s want and need. Also no new concept to the business world but The New Economy escalates this paradigm to new levels. Take for example Cisco. Cisco systematically surveys customers through out each fiscal year. Customers’ responses are directly and heavily linked into annual bonuses. Therefore, power is returning to the customer and New Economy companies are redefining just exactly what it means to be customer driven.

Second, in addition to being oriented around customers, The New Economy is oriented around individuals. Just as power is returning to customers, it is essentially returning to individuals, who are in many cases customers. Examples of this abound. New Economy employees are much more individualistic and career focused than their Old Economy counterparts. The former realizes they have many alternatives. As Steve McKay of Web Connections says, “You need to understand that your employees are volunteers.” In other words, treat your employees as volunteers because they have choices in this tight labor market. Employees can leave on a moment’s notice knowing they can quickly find employment elsewhere. The social contract is breaking all over the world with more and more people realizing that lifetime employment is no sure thing. The New Global Work Force is no longer loyal to the corporation – it is loyal to itself.

Looking at the various dimensions of The New Economy, one will see that The New Economy has been around for quite some time. Take, for example, the concept of “value added.” This term has been beaten into buzzword submission. Unfortunate because so many New Economy companies provide unique value for customers and individuals. Consider a leading Silicon Valley tech firm for a moment to consider how much value their Customer Trouble Shooting Engine Provides for customers encountering technical problems. The online system is so advanced it can handle 98% of the company’s customer inquiries 24 hours a day: that’s value! The remaining 2% call a toll free line to speak with a highly training Commando Customer Service rep typically holding a Masters in their field and trained inside out with New Economy customer service skills. Reportedly, the encounter is like dining at a fine restaurant – and we’re talking routers folks! That equals more value for the customer!

The bottomline: The New Economy represents a philosophical change – it is a new way of life. Now enter the Internet and an entire line of technology companies. Internet technologies perfectly match New Economy philosophies. The Internet revolutionizes business in many ways and it also gives back power to the individual. How easy is it to blow off a web site if the surfer dislikes the site or finds the connection too slow? The power sits in the individual’s hand with a simple click of the mouse. The New Economy is fueled by the Internet, but it’s not about the Internet. The technology is merely a facilitator for a bigger paradigm shift. Similarly, the Internet is not about making money or rocket ship IPOs and stock options – it’s about fueling The New Economy. The whole thing is a philosophy and that’s the Big Picture.

In this series I will examine three main areas: First, what are the various philosophies that comprise The New Economy. Second, what parts of the Old and New Economies blend together? And finally, what is required to be a potent leader and powerful manager in the Asian Internet scene. Everyday we read a dozen different magazines from the United States with quotes from truly visionary New Economy leaders. How often do you hear the same from Asia leaders? Hardly ever, but that’s going to change. I promise you my thoughts will add value… it’s a Bold New World – learn about it here.

Tuesday, July 04, 2000

Kiss Your PC Good-Bye

New Economy Management: Kiss Your PC Good-Bye or Risk Failure With Your Start-up ~ Charles Caldwell, Asia Pacific HR Director for Rockwell Automation, provides a series of management concepts for individuals looking to develop their management and business skills in The New Economy.

I remember in 1990, a friend and I had a discussion about vinyl records. This friend said that compact discs would never triumph over vinyl. Not long afterwards, CDs proliferated the market and vinyl records disappeared from the sights of almost everyone except record collectors. Today the computer industry is on the cusp of a similar revolution. The industry as we know it is dead – it is just a matter of time for the rest of the battle to be played out. Any computer company, Internet Company or Technology Company worth its salt had better be planning for the demise of the computer. If your company (especially a start-up) is dependent on the computer, as we know them now, then your little start-up will go the way of the dinosaur computer, too.

As early as 1960 (!), Peter Drucker, the grandfather of modern management theory and one of the greatest business writers of our time, said that computers were far too large. Grant it that at the time most computers were gargantuan by our standards today. When PCs entered the scene, Drucker continued by saying computers were hopelessly clumsy and that an enormous shake-out in the computer industry was inevitable. Even today the computer takes on the same characteristics of large clumsy machines on an only slightly smaller scale. Computer manufacturers force consumers to endure large computer sizes with the exception of notebook computers. Notebooks prove that the computer can get smaller (although some might question if that includes lighter) and even today Drucker continues to say computers are too large, and he still weights for the shake-out.

Think about the size perspective. A typical computer’s tower has remained the same size for the last ten years, as has the keyboard and computer screen. Lately we have seen ergonomic changes to the towers and mice, but the only dramatic change to the computer’s size has been the recent advent of the flat screen. Have you ever looked inside a computer’s tower? There is a hell of a lot of space in there. Sony has recently introduced a line of very sexy looking (and equally as powerful) desktop computers that break the mold for both power and size of the CPU. This is just the beginning.

The computer has also turned into a commodity. Computer prices have dropped 1% per month for the last twenty years – consistently. Meanwhile, the computer’s speed has accelerated to breathtaking levels. A bigger and bigger punch can be packed into a smaller and smaller space. With processors beyond 1 Giga Hz in speed, many have asked the Intel’s of the world how small the chips can get. There appears to be no limit – the latest response is that these firms are already studying microchip manufacturing at the sub-atomic level. That’s small. Other technological advancements race ahead just as quickly with computers capable of tremendous manipulation leaving tasks like advanced graphics manipulation within everyone’s reach. But do we need all of that power? Study after study illustrates that most computer users never use more than 5% of their computer’s capabilities.

Furthermore, computer standards are becoming more and more global further adding to the commoditization of the computer. How do computers companies differentiate themselves? Through service (IBM), building to order (Dell) and peripherals (HP printers) to name a few examples. Companies now focus on the consumer and his or her use of the computer, none of which fits the basic mold of the PC. Do we really need a computer that big? No – I would much rather have a flat screen and small CPU. In this way Sony’s latest line of products is breaking the traditional mold and killing off the first line of computer dinosaurs.

In the very near future, the computer will start to disappear. Where will it go? Consider the following:
  1. In North American you can now buy $99 USD computers that do nothing but connect you to the Internet at lightening speed. Repeat after me: this computer can do nothing but interact with the Internet. (Essentially, they have eliminated the aforementioned 95% power that consumers never use and the machine still operates at lightening speed.) Once on the Internet, this small, ergonomically and user-friendly machine directs you to all the various web sites that can provide you with all the traditional suite of service’s you might house on a typical $14,000 HKD computer.
  2. As Smart Houses begin to emerge, computers will be built right into a house, monitoring all of the house’s functions and appliances. This computer will have little resemblance to a PC, but will offer many of the same services and much, much more.
  3. For several years companies have been developing Internet access through large screen phones with touch screens. You can talk, surf, or do both. The technology is there – it is purely a question of when the consumers are ready for it.
  4. Mobile phones and PDA’s will present the greatest threat to the PC. Imagine the next generation Palm Pilot (think big – not the latest but the next, yet to be invented Palm). Add in voice recognition, plus WAP. There you go – it’s all over for the PC. All you need to do is plug your Palm into a nice big flat screen at home or the office. Touch screen technology replaces the mouse (poor mouse) and you’re surfing the Internet in grand style. Not a PC in site. Instead there will be hubs and all the small things get plugged into.
The wide spread application of these and many other far more creative technologies is not far off. If you plan on launching any company in this space, whether a Technology Company or Internet Pure Play, you had better take these changes into consideration. With the traditional computer on the edge of its demise, it would be a huge mistake to assume that any traditional computer technology currently surrounding you will be here in two years. What is required is a close examination of all the technologies your start-up will be reliant on and identification of any future technologies that could be substitutes or replacements for old computer paradigms. You will need to examine how the shift in technology paradigms will affect your company’s future.

For example, how will your B2B portal function on the small screen of a PDA or mobile phone? Will your portal be able to function with touch screen technologies? Does your business strategy take into account VOIP or web cam technologies? Is your new, super-hot software program designed for the PC – if so, what else can it be used for? How does voice recognition affect your business plan?

Asking these types of questions is what one might call “technology due diligence.” Failing to conduct these types of exercises could result in catastrophe for any business planning to venture into the Internet or technology fields. Of course you might say that new technologies will never triumph over the PC, in which case you’ll probably end up being a collector.