A swap market concept

I’ve been playing around with a concept for a swap market that started out almost as a joke, but now that I have a prototype working I’m wondering if this could be a new approach to the classifieds market.

Photo: HapaK

My daughter has either outgrown or has lost interest in several of her toys that I’d love to pass on to someone else rather than store in our increasingly muddled basement. I’ve got a perfectly decent baby rocking horse, some slightly chewed books, a bunch of stain-free clothes, an immaculate car seat and a functional though well-worn stroller.

I’m sure I’m not alone with an excess of toys floating about. Actually, I’m fairly confident that there is a ton of kiddie gear in San Francisco that should be recycled through other children rather than relegated to each house’s used stuff cemetary. And I’d much rather trade my stuff than pay for new stuff.

So, I started running architecture scenarios through my head for getting a workable prototype of a web site that my wife and her friends could use to swap their used baby gear. It seemed completely out of my league the more I thought about it.

But as luck would have it I found that Jon Aquino built a Craigslist application for Ning that covers about 80% of what I need. I was able to setup and configure a site that looks and operates nearly identically to Craigslist in concept if not in function, as well. People can post things they want to sell. And shoppers can search and browse through lists of things in reverse chronological order. You can comment on posts and discuss topics, too. I was also able to configure the shopping categories for this particular vertical in just a few minutes.

You can see what I’ve prototyped so far here: http://flipstash.ning.com/. Again, it’s about 80% done, but it’s that the last 20% that’s the most important part of the prototype.

How do I facilitate the swap? How does a person decide that what they are offering is of at least a similar value to what they are getting?

One idea is to approximate 3 tiers of value and have users assign a value tier to their swappable items. Another is for FlipStash to approximate values of things posted and credit the user’s account which they can use to spend on other people’s things. Both these methods seem awkward.

A better way to solve the problem might be to allow you to post a dollar value for each item you post and then credit you with that amount to spend when someone claims your item. You would have to build an eBay-like reputation system to keep people from cheating.

And then there’s the revenue model. It seems this would be a great case for using subscriptions. Say, for example, you could trade items up to $5 in value for free, but if you wanted to buy or sell anything worth more than $5, you would have to pay a monthly fee.

Of course, I could just let people post prices and let them pay each other. But what’s the fun in that? It’s already been done. Much more entertaining to try and shake up the model a bit, eh?

A good marketer doesn’t have to advertise

The real power structures behind the advertising industry appear to be staring at the Internet for the first time. The big agencies, in particular, are wondering how to make money as the vehicles they once relied on lose influence in the market. It was probably people like Warren Buffett who finally convinced them that something actually really scary is happening:

Photo: Thomas Hawk

“The outlook for newspapers is not great. In the TV business, a license from the government was essentially the right to a royalty stream. There were basically three highways to people’s eyeballs, and companies like P&G, Ford, Gillette, and GM would pay a significant amount of money to be get on those highways and advertise their products to a mass audience. But as the ways to get in front of people’s eyeballs increases, the value of those highways goes down.”

What’s a marketer to do? They are desparate for attention. In many cases they even threaten to drop campaigns if they don’t get editorial coverage.

“Almost 50 percent (48.9%) of senior marketing executives reported paying for an editorial or broadcast placement – and almost half of those who haven’t said they would…If 65% of consumers assume that the products, companies or services they read about are there because someone paid for them – and half of marketers have actually paid for media coverage – the press, PR industry and news consumers are all in trouble.” (via Forbes.com)

Buying coverage isn’t how you get people to spread the word about your product. It’s also shortsighted if not suicidal to damage the credibility of the vehicles that you rely on to communicate trusted messages with your customers.

There is another way, however.

I’ve been watching Colin Roche turn his PenAgain invention into a real story with real coverage from big outlets over the past 3 years or so now. I don’t think he has spent a single dollar in marketing, yet media coverage only improves and as a result sales keep soaring.

This stratgegy is not for the weak. Colin keeps a handful of pens in his pocket at all times. He hands one out to everyone he talks to pointing out the latest enhancements such as the new packaging or the new flip cap spring. He makes people feel like they are helping a guy startup a cool little company with him.

He slips it into conversation whenever he gets a chance. He sends his pens to famous people. He sends them to reporters and editors. He chats with store owners who are selling his pen knowing that they are going to help sell it, too.

Everyone is not only a customer in Colin’s eyes, everyone is a potential marketing vehicle for him.

Colin has also refined the “story” of his company. It’s all true. He did in fact dream it up in detention in high school. And the name did come to him after someone woke him up and he said, “I was dreaming about that pen again.” But it’s these anecdotes that make his company feel human and interesting to talk about.

Colin also just started blogging and is now collecting photos of people using the PenAgain on flickr. His flickr photo stream looks like the walls of a New York City diner covered with images of people shaking hands with the owner.

He’s doing all the right things to help people who love his product share his enthusiasm for it.

Contrast his marketing efforts with traditional advertising agencies and you’ll find people stuck with a system that doesn’t work. Agencies get paid more for the expensive print and television campaigns than they ever will for search marketing. They have no incentive to jump into the online space and will continue to sell their clients on the virtues of big expensive branding efforts.

And then you have the media buyers who get paid for allocating a big budget across media vehicles that meet the agency’s campaign goals. But since the goal is usually wide exposure, media buyers have to use vehicles like TV and big circulation magazines to justify their existence. And there’s no incentive to spend less than the budget…quite the contrary. The more they spend, the harder their job is which means they can justify billing for more.

Agencies and buyers are both wrapped up in a dynamic that profits from the waste they create. This worked when there was more friction in the distribution process, as Umair Haque will tell you, but media has taken a lube bath on the Internet and the need for an expensive shoehorn to squeeze expensive campaigns through no longer fits. (yikes…bad mixed metaphor there. sorry.)

“Edge platforms have a number of key features. The most familiar are that they’re often massively distributed, and open-access….they can usually almost completely vaporize the fixed costs of production from most of the resources that are necessary and sufficient to compete in those industries.”

Similarly, Jeff Jarvis sees a tipping point coming for the advertising industry:

“Advertisers can get away with moving slowly – for now – because they are the ones with the money. Funny how that works. But this won’t last for long, as one client and then one agency discovers that the lazy, traditional, one-stop-shopping of TV upfront and the big-media lunch circuit is inefficient, wasteful, untargeted, irrelevant, and ultimately damned irritating to your customers.”

At the end of the day, the product vendor doesn’t want to work as hard as someone like Colin to sell their product. If they did, then they would be inventing their own things and selling them to the world. The moment they hire an agency to take on that work, they have jumped into a spending whirlpool.

What they should be doing instead is talking about their product every day with everyone they meet and crafting the story that will get other people talking about their product for them. They need infectious enthusiasm for their products, not clever billboards.

Photo: jjjjjjj

Product sales isn’t getting any easier. In fact, it might be getting harder. Since the Colin Roche’s of the world are learning how easy it is to manufacture interesting products, and anyone with a computer can tell their story on the world’s stage, it probably means that selling things is more competitive than ever before.

If marketing industry leaders want to retain the downtown office spaces, nice chairs and designer clothes by riding on cushy vendor marketing budgets, they have to reinvent themselves in ways that make them invisible again. Forget about the Clio awards. You need to get back to work finding ways to get your clients and their customers talking with eachother about eachother.

I recommend starting out by pretending you have no budget before that becomes the reality.

Idealizing media business models

Jon Udell notes that WSJ’s landlocked articles may in fact help them drive revenue but at what expense:

“PaidContent.org reminded me that WSJ.com is considered a major success not only in the realm of paid online circulation, but also in comparison to newspapers…This may be a successful model of publishing, but it seems to me a curious definition of success.”

Photo: niznoz

How do you measure the opportunity cost of gating your content? The most obvious way is to estimate the number of page views an article would get outside a gated wall and then extrapolate revenue off CPMs.

However, this equation has a fundamental flaw that is not so easy to calculate. It’s the core question of every media company. How do you measure success? Do you exist to make money or do you exist to connect people?

It’s easy to say that media companies have to be both. But which powerpoint slide are you going to show your board of directors first? One of those will ultimately drive every decision at the company.

But even those two metrics fail to measure success in media as I’d like to see it. I’d like to see media brands measuring success based on the quality of the relationships they are able to catalyze. And I don’t see why that’s not possible…it might be hard, but it should be doable.

For example, it’s not how many people read an article that matters, necessarily. It’s how deeply did a story help a person. It’s not how many ad impressions were served, nor is it how many clicks or even the number of sales that result from an ad on a media property. It’s about the types of ways the media property improved the relationship between a vendor and that vendor’s customers.

Imagine how much easier strategic decisions would be if you could look at a report each morning that showed how many of your site visitors were getting promoted in their jobs or referring their friends to particular vendors that advertise on your site.

Imagine going into the board room each quarter and showing that as a direct result of the activity at your web site the average visitor income level increased or productivity in the industry improved or something more substantial like the number of homicides in the area decreased or more people voted in the last election.

Photo: infomaniac

Imagine telling an advertiser that working with your media brand meant that their customer retention metrics would improve or that people would be talking about their products more or even that they could drive up shareholder value. Imagine the rates they would pay to work with you for those benefits.

And imagine the types of people that would want to work at this kind of company and the amazing products that would come out of it as a result of these measures of success.

Yeah, pipe dream, I know. At the end of the day, most of us just want to get paid for their work and live a simple life. There’s nothing wrong with that, and I certainly fit in that camp a lot of the time.

The question in my mind is: Are qualitative success metrics like these measurable and attainable? If they’re not, why not? And if they are, why would you pursue anything else?

Copycat ad networks threaten Google’s stability

Any successful business model is going to have imitators.  Google knows this as well as anybody.   But now the stranglehold on the distributed ad model is feeling weaker than ever with new competitors every day.

The magic formula = isolate revenue collection system into a platform + make it available to other web sites – share earnings back to transaction/click source.

Yahoo! rolled out a similar offering about a year ago with YPN.  eBay launched their own version recently.  Amazon has had their affiliate program for years.  Kanoodle, IndustryBrains, Feedburner and a host of others all know this solution with their own twist on it.  Media networks such as IDG smartened up to the opportunity, as well.

The magic formula is showing cracks, though.  Click fraud is not being measured effectively by independent audits nor is payment being adjusted to compensate for it.  And Google has no short term incentive to solve the problem just as Microsoft once had no incentive to fix Windows security threats.

Linux gave Microsoft reason to change.  I wonder who will push Google into panic mode.  They may just sleepwalk into the death trap as long as their search market share remains strong.

Though have no doubt that Google can change.  At some point Schmidt’s insistence that Google is a technology company may actually trickle down and create some revenue opportunities that are more service based.  If they can scale their office products for mass adoption and perhaps create a browser optimized for those products, then they will finally have a potential revenue model to match the rhetoric.

The question is whether the market share losses surely in AdSense’s near future will fracture Wall Street’s love affair with the company before they can not only diversify but also stabilize on a mix of technology service revenue streams.

I can’t even imagine the complexity of the cultural war that will wage internally when/if the “technology” part of the business actually becomes a real slice of Google’s revenue pie.  Manufacturing consent will probably work while Google continues to grow.  I’d still hate to be on a “technology” product team at a company where 99% of the revenue comes from media products…wait…from one media product.

The Google Phd’s are probably predicting the copycats, the corporate positioning conflicts and internal competitive challenges as I write this, but are they smart enough to get their Product Managers and Biz Dev guys to help them actually figure out how to solve the problems, or do they just write papers and send long emails with subject lines in all caps?


Maybe Microsoft’s MSN team has some advice for Google’s technology product teams about operating in the shadow of the cash cow.

“Iterate and release” has its problems, too

One of the teams I’m working with has adopted a sort of customized agile-style development process. I really like it, but a few problems are coming up:

  1. Just like after a heavy workout, you need a warm down of some sort. You can’t just suddenly stop and declare victory after a sprint. There are always a few more things to do, and your brain muscles need to flush out the acids that built up during the race. And just like that feeling the day after a good work out, it’s hard to actually get momentum going again, and a cheerleader only makes you bitter.
  2. Collaborating with other teams in the company is very tricky. Team independence is crucial to the agile process, but that means no two teams are ever in synch. It’s like IM’ing with a friend in Europe. You can catch them for a few minutes in the morning if you get into the office early enough, but by the time you’re ready to actually say something, they’ve logged off and hit the pubs.
  3. Similarly, business operations quickly get out of synch with what’s happening on the ground. The roadmap review or the hiring planning or the marketing communications or the performance reporting should all operate with the same “rapid iteration, frequent release” methods.

    For example, in my previous jobs I kept a big whiteboard marked up with all the key metrics of my business. I stared at it all the time. Patterns emerged with each new line row of data which made the short-term decisions much easier to identify. The 3 year plan was then an abstract vision with tangible month-to-month goals. Of course, we weren’t able to act on many of the short-term needs because the planning for the current year was already locked down.

  4. It seems hugely important to have an abstract framework to work within as a guiding light when you’re chasing 30 to 60 day goals. But agile development doesn’t necessarily have an end point. The goal needs to feel like a BHAG, yet it needs to be as measurable as the end date of your development cycle.

    For example, a news media site may want to chase down a long term goal of “High customer loyalty”. That goal then needs to be measured in terms of things like repeat visits. And so the result of each sprint should be an understanding of whether or not that sprint had an impact on repeat visits.

There are lots of great things that come out of the agile process including an intense focus on a goal that everyone can work towards and the freedom to postpone things that block progress, among many others. However the process is not without flaw.

At some point, all the IT solutions you can purchase and project management processes you can adopt will hit a ceiling. That ceiling is most likely a need to fundamentally alter the goals and direction of the business itself.

Why (and how) the online ad model needs to change

Somehow I keep expecting some company to break through and solve the problems with the Google AdSense model. As advertisers, buyers and media vehicles get smarter about efficiency, the holes in the system get bigger and bigger.

AdSense revenues help a lot of mid to large-sized web sites, but really more as incremental revenue. By the time you’re big enough for AdSense to support your business there are several other revenue opportunities with larger payouts avaiable to you.

And there’s no doubt that AdSense (and most Internet advertising) is failing to help people find and buy the things that matter to them. How can it be that we have an ad model that is considered wildly successful when a campaign or ad unit gets a click-through rate of 1%? And the reality is that it’s much much worse than that on average.

Photo: DWS

Why are click through rates so low? Because the ads don’t matter to people. They aren’t relevant. They don’t help people identify products or brands that matter to them. They don’t help people locate the right deal at the right time.

Yes, some people get lucky if they’re paying attention. There wouldn’t have been $5B in search ad revenue in the market in 2005 if nobody was clicking on the ads. But the click performance and subsequent conversion rates suggest this kind of ad network is just a spray hose of wasteful bits showering the Internet with clutter.

It doesn’t work for advertisers, either. Advertisers want more control over their ads, where they appear and to whom they are shown. Blanketing text links blindly across the Internet does not necessarily result in paying customers. They know they’re wasting money, but they can’t afford not to be present in the network.

The AdSense model does much more to help Google and the Google shareholders than it does to help any of the customers it is supposed to serve.

I think the Amazon affiliate program is much closer to a more sustainable ad model for the future. When you can track clicks all the way to a sale then everybody wins. The weakest link in the Amazon affiliate chain is the media vehicle which has to work a lot harder to drive clicks that convert to sale. But the buyer and the seller are both happy, and that’s ultimately what matters most.

I’d love to see an ad network that is able to let media vehicles optimize the ad content and display rules for the ads. The look and feel of an ad is not going to crank up the conversion rates. Media vehicles need to help the right ad get to the right person.

For example, when I post on my blog, I should be able to flag a stream of ad content and define the type of algorhythm that makes the most sense for that post and the users who are most likely to read it. This post should probably link to lead generation service providers even though I haven’t explicitly used the term “lead generation” anywhere in the post…uh, well, you get the idea.

Likewise, users should be able to self-identify as buyers. I haven’t yet setup a wifi network in my home, so I’d love for every tech-related web site I visit to show me the latest deals and setup guides and retailers for wifi gear. I’d actually like the content on all those sites to adjust, as well. I want to see what’s new and interesting at these sites, but they should be able to surface content from deep in their archives that is relevant to the things I’m actively pursuing. My intent should edit the home page for me.

I guess I’m saying that somebody needs to build a service that on one side connects directly into an advertiser’s sales conversion or transaction systems and on the other side distributes marketing links and images for media vehicles to take and optimize. The system should track performance across the chain and offer optimization options at all points along that chain.

Pieces of this exist and some of it is very complicated, I know, but I don’t see why efficiencies can’t be improved. And if enough advertisers are able to offer affiliate programs to track impression-to-click-to-sale, then they may even start competing with eachother and offer better incentives to media vehicles that find customers for them.

Users would see ads for things they want to buy. Advertisers would sell more product. And media vehicles would earn more from the revenue share.  Where’s the down-side?

New blog about running a startup from PenAgain inventor

Several authors have proven that blogs are a great complement to writing and then selling a book. They are also excellent companions to operating and marketing a business.

Colin Roche, entrepreneur and inventor of the PenAgain, began publishing a blog this week in response to some big buzz generated by an article in the Wall Street Journal last week. The piece was about how the Wal-Mart distribution system works for product developers from a small businessman’s perspective. The small businessman in this case was Colin with his PenAgain.

The PenAgain story is great. A guy has an idea for a radical new pen…while in detention in high school. He prototypes it in his garage. He gets investment to produce it several years later. Then he hits the streets and sells and sells and sells.

Right now is the point in the story just before he hits it big…or does he?

“During the trial, PenAgain will get space in the special displays, known as “end caps,” at the edge of aisles, in the thick of consumer traffic. The prime positioning will give the product a fighting chance: After 30 days, the stores need to sell close to 85% of the 48,000 pens Wal-Mart ordered if the product is to be considered for wider distribution throughout the chain.”

Part of Colin’s strategy so far has been about paying close attention to what people think of his product. He is constantly watching people use his pen and listening to their advice. And I’ve seen what happens firsthand. There is no shortage of advice for a guy that is trying to launch a product that people can hold in their hands and buy on a supermarket shelf. Everyone has an opinion for Colin.

So, it makes sense that he step into the blog world and open up that dialog to a much wider pool of opinions. I’m hopeful he’ll entertain us and inform us about the entrepreneur’s journey.

For example, he needs to give us performance reports and share the tactics that work and the ones that don’t work. He should give us insight into what his day is like and what the market is doing. People will want to know how many pens and how many distributors he has to work with so that other entrepreneurs can compare notes. They’ll want to know price pressure, competive details and lessons in distribution.

Most importantly, for blogging to have an impact, he needs to consider the people who share their thoughts with him in the blogosphere as trusted advisors.

John Battelle mastered the art of integrating a blog into the author’s writing process. He posted thoughts daily and watched people react. He let them inform him and correct him. He then incorporated those discoveries into the story that became his book. And when his book finally shipped he had an instant base of buyers and marketers.

Unfortunately, John hasn’t adopted the same approach for his new business. Perhaps Colin can show us how it’s done for a startup.

Disclosure: I’m a friend and advisor to these guys.

Answering the Answers question

It wasn’t until someone much more tapped into pop culture than I am told me that the Yahoo! Answers product was cool that I considered it to be true. I didn’t get it at first. I wondered, “What’s the incentive to contribute? Maybe it works for kids. And when was the last time Yahoo! launched a cool product of its own anyway?”

Photo: Mr. Mark (reclining buddy)

I still don’t understand the incentive to answer questions, but despite that I’m amazed at the responses to the questions people post.

First, I love some of the philosophical dialog in the system. Deepak Chopra appeared in Answers with a question, and the answers were fantastic:

Q: “What do you think the role of individual transformation is in manifesting world peace?”
A: “…The question to me is not the role of individual transformation in manifesting world peace; but can mankind agree upon what the symbol of peace represents and if so, how might this further or progress all mankind’s evolution of the psychobiotic self.”

Second, it’s very social in a new kind of way. It’s like walking through a festival where you jump into a conversation with totally random people without any awkward formalitites. You ask a question, hear what people have to say and move on having a new perspective to take with you.

I asked one question about the need for our educational system to teach personal responsibility in the online world, and the responses were primarily from what appeared to be teens. I have no connection to the universe that is teenage but with this question I suddenly found myself in a very brief but relevant dialog with the people who are affected by the question.

Third, and I guess this shouldn’t be a surprise, you can get better information from people in this world than you can from your limited scope of offline friends.

Photo: _Faith

I was watching Prince perform on American Idol and kept asking myself, “What is it with this guy? Why is Prince such a big deal?” I started asking friends the same question, even people who are big Prince fans, and I couldn’t get a good answer. So, I posted a question on Answers. I figured that if someone could tell me why Prince matters then maybe it was actually useful in addition to being cool.

Sure enough, I got a couple of funny answers within a few minutes, but within about half an hour somebody convinced me that Prince was worth caring about:

“Prince is able to play multitude of instruments and genres. He mastered the piano at seven, and 6 instruments by 12. He is the youngest to ever produce his own albums at the age of 19. He takes risks and help define the sounds of the 80’s. He was the first black artist to appear on MTV. Not Michael Jackson.”

But there are a few things I’d love to see Answers do better. It’s so random and dense that I need some kind of UI for surfacing stuff that might matter to me. I like that when I post a question it tries to point me to similar questions that have already been answered.

I also want to have some kind of natural incentive for answering other people’s questions. Points won’t do it. Maybe I don’t get it still, but I don’t have any desire to add my knowledge into the pool, yet.

Lastly, I’d love to see the back end opened up as a service…completely. Community sites of all types including publishers should be able to skin the service for their users which would then contribute more data to the wider knowledge pool. I can imagine a site like PCWorld.com using Answers to help their users help each other answer laptop fix-it types of questions or maybe storage device shopping advice.

Obviously, my comments have to be taken with a grain of salt since I share the same employer as the Answers team. But the purpose in writing this was less about promotion and more about exploring social incentives online with a new real world example. There’s more to learn from Answers, I’m sure, but there’s lots to be emulated, as well.