Ecosystems Create More Jobs Than Companies

60 Minutes had a story last week on the increasing impact of robots in corporate America. Because of the technical innovation that continued during the recession, as companies begin to grow again they're finding that they can replace many of the lost jobs with robots instead of people. One of the researchers in the piece points out that Apple, Amazon, Facebook and Google are all public companies and have a combined market capitalization of nearly a trillion dollars. But together, they only have  around 150,000 employees. Which is about half of the size of GE and less than the number of new entrants into the American workforce each month. Sounds like a bad thing, huh?

Not really. What this comment ignores is the ecosystem that these companies have built.  Each one of the companies listed above creates far, far more jobs than the number of employees that work for them directly.

Some examples:

• Apple's app store now has more than one million apps that are built and sold by entrepreneurs that don't work for Apple.
• Thousands of independent merchants sell their goods through the Amazon Seller Program. Amazon gives these sellers access to 200 million+ shoppers each month. Amazon also enables authors to self-publish and sell their work through the platform.
• There are more than 10 million revenue generating apps that plug into Facebook.
• Google's Android app store has more than one million apps built and sold by entrepreneurs that aren't employees.

So when you dig a bit deeper you find that the combined market cap of these four companies is incredibly dependent on the work of an enormous number of entrepreneurs that are making a living through these platforms. So while GE may have more employees than these companies, the number of individual livelihoods that are supported by their platforms dwarf the employee headcount of any American company.

Blocking Out The Competition

Over the last few months, Twitter has removed the auto-preview feature for Instagram Tweets. So now you have to click through the link in the Tweet to see the photo. Presumably Twitter did this to encourage their users to use their native photo sharing application. When LinkedIn redesigned their profile page about a month ago, they dramatically decreased the exposure of a user's Twitter account. In fact, it's not even on the main profile page, you have to click "contact info" to see a user's Twitter account. This is a drastic change given the LinkedIn/Twitter integration that used to exist.

So LinkedIn is blocking out Twitter and Twitter is blocking out Instagram.

I think this is dangerous for LinkedIn and Twitter. I've written in the past about how difficult it is to build a successful B2C business. Your product has to be so great and so valuable if you want to win. You don't have the luxury of a salesperson whispering in the user's ear giving them context on your decisions or information about what's coming soon and how the product will improve. The product has to be great, right now.

Of course, I don't know all of the facts behind these decisions. But I do know that the effect of blocking out applications that users like is bad. And in a B2C business, what's bad for the "C" very quickly becomes bad for the "B".

Snapchat & Sharing With Discretion

I've written in the past about the fact that Google+ is trying to fix social networking. While they’re not doing it very successively, the concept behind Circles is a powerful one. It allows users to easily share with discretion; i.e. to share certain updates and photos with selected groups (or circles) of friends. If Facebook favors 'open social networking', and Google+ is promoting 'discreet social networking', then Snapchat is promoting 'private social networking'.

From Wikipedia, Snapchat is:

a photo messaging application. Using the app, users can take photos, record videos, add text and drawings, and send them to a controlled list of recipients. Users set a time limit for how long recipients can view their photos, up to 10 seconds, after which it will be deleted from the recipient's device and the company's servers.

Sounds like something James Bond would use.

Snapchat was started back in September 2011 by a couple of Stanford guys. It now has around 200k monthly uniques, a $50 million valuation and users are sending 50 million 'snaps' a day.

Snapchat's success is a clear indication that there's a market for privacy. Social networks that don't facilitate the ability to easily share with discretion would be smart to take a closer look at Snapchat.

The Problem With Google Health

Google Health, the self-managed patient portal that launched back in 2008, shut down on December 31st. According to Google's blog post, they made the move due to a lack of user adoption:

Now, with a few years of experience, we’ve observed that Google Health is not having the broad impact that we hoped it would. There has been adoption among certain groups of users like tech-savvy patients and their caregivers, and more recently fitness and wellness enthusiasts. But we haven’t found a way to translate that limited usage into widespread adoption in the daily health routines of millions of people.

Google Health faced the same challenge that EHR (electronic health records) faced in driving adoption among physicians: everyone sees the long term benefit of getting patient information online, but in the short term, it's a lot of work.

In order to drive wide-ranging engagement and adoption of a self-managed patient portal like Google Health, there has to be an instant piece of value in return for the patient's time and effort. That value can be money, time savings, or some other functional piece of value -- the greater the value, the greater the adoption. Case in point: EHR adoption finally picked up after the government provided high value, short term financial incentives to physicians that reached an acceptable rate of usage.

Because Google didn't offer some kind of immediate, tangible benefit to their users they weren't able to drive the wide-ranging adoption they expected. It may sound a bit simplistic to claim that companies have to offer some kind of tangible reward to drive real adoption of a patient portal. But in some cases, it really is that simple.

Individual Employee Budgets

The other day I wrote about the fast growing b2e2b business model where enterprise software companies make their product available (often for free) to individual employees. Then – after those employees love the product – they put pressure on their employers to buy the premium version or to buy the product for the entire enterprise. While I believe that this model is going to continue to grow at an extremely fast pace in 2013, there is no doubt that it’s inefficient – i.e. the employee has to go through a bureaucratic purchasing department to buy a tool that will make them better at their jobs.

That’s why I believe that, as we see b2e2b grow, I think we’ll also see this inefficiency addressed. That is, we’ll start to see more budgetary control put in the hands of the individual employee. Many companies – even large companies – already give their employees a cell phone budget. I think we’ll see this kind of control flow down to other productivity tools as well to the point that budgets won't be bucketed by division or group or team -- we'll see more and more money flowing into individual employee budgets.

Of course there are internal compatibility, security and scalability concerns that will slow down this trend, but I think this it's something for enterprise focused companies to watch out for in the coming years.

Enterprise Software & The Network

Fred Wilson posted a talk he did the other day on enterprises and networks. Including Q&A, the talk is nearly an hour. For me there is one incredibly important takeaway for software companies that are focused on the enterprise. And that is that in today's environment, in the long term, you must remember that your business model is a commodity, your software is a commodity, your customer service is a commodity and your sales team is a commodity. The thing that will provide you with sustainable, incremental value over the long term is your network of users. That is the one thing that is extremely difficult to copy in the long term. Enterprise focused companies that have large networks of engaged users that are adding value to the product simply because they use the product are the products that will win over the long term. Here are five good examples of enterprise software products that are successfully using their network to increase engagement and product value.

• Yammer (users are an extension of the sales force)
• LinkedIn (users -- i.e. job candidates -- are the product for recruiters)
• Mongo DB (users improve the code by using the product)
• DropBox (users are an extension of the sales force)
• Disqus (user discussion drives increased traffic and engagement to participating blogs)

B2E2B (Business to Employee to Business)

We all know b2b and b2c, and even b2b2c. I'd propose that an emerging software business model is b2e2b (business to employee to business). While it hasn't been called out clearly like this (trust me, I've 'Googled' it) there are many companies that are already using this approach (Yammer, Dropbox, Xobni and others). The way it works is that a company builds a product that can be accessed directly by a single employee of an organization. As the number of users within a company grows and reaches a critical mass, the company then has a salesperson contact the organization to make the upsell -- e.g. business to employee to business.

Of course, this model is interesting in its own right. But there are much larger implications for enterprise software. Chris Dixon and others have talked a lot about the fact that enterprise technology is far behind consumer technology. As I've written before, I believe that the reason for this is that enterprise technology can get away with being bad. For example, if you're a payroll provider and you provide a lousy interface for employees you can get away with it because you only have to sell one person in HR on your product (and then they force ten thousand people to use it). But if you're a consumer site like Mint.com you can't get away with being lousy because you have to sell 10,000 people, one by one. You have to be great or you'll fail.

And this is why the b2e2b approach is so important. It’s radically changing the way enterprise software is built and sold. And as a result, we should see the quality of enterprise technology begin to catch up with consumer technology. And when it does, those big b2b companies that continue to rely on their brand or their sales force to drive sales will begin to collapse.

Facebook's 15%

You may have noticed that there are fewer posts in your Facebook feed these days. The reason? Facebook is now selling its ‘sponsored posts’ feature to individual accounts in addition to business accounts. So now, when you post an update to Facebook telling your friends that you’re going to the gym or looking forward to watching your favorite television show that post only appears in approximately 15% of your friends’ news feeds. But, if you pay a small fee (I hear around $5 to $10) Facebook will show that post to a much larger group of friends. This change has caused quite a bit of frustration for Facebook users. And rightfully so.  Many businesses and individuals have spent massive resources acquiring Facebook followers and have been using Facebook as a way to engage their customers for years. You can understand the frustration among businesses and individuals that suddenly have to pay to speak to their own network.

For Facebook, though, the move makes a lot of sense. They’re a public company now, and the market wants to know how they’re going to continue to add shareholder value.  And given that there are reasons to believe that their user growth is beginning to top off, there’s lots of pressure on them to monetize their user base.  Offering a paid product to their entire base of users – which, by the way, equates to about one seventh of the world’s population – is arguably a step in the right direction.

Of course, what’s good for Facebook’s stock price in the short term may not be good for its users. Beyond the anecdotal frustration, Mark Cuban and others are advising their companies to pull back from using Facebook as a primary marketing channel. And some of the bands I follow on Facebook have asked their users to begin following them on Twitter instead.

Facebook has to walk the thin tightrope of providing an accessible and valuable platform to the masses while it tries to monetize more and more of their user base. In the past, shareholders could argue that Facebook may have leaned too far towards providing the free platform. With this change, they’re now leaning in the opposite direction. They'll have to adapt their product and communication strategy to figure out how they can continue to thrive using this new model – and they better hope their users stick around while they do.

Conscious Capitalism Talk

Here's a great talk that my former marketing professor, Dr. Raj Sisodia, gave at TEDxNewEngland about a month ago. The talk addresses how the world has changed dramatically in recent years and encourages our large corporate institutions to change too. Dr. Sisodia was without a doubt my favorite professor in business school and this talk reminds me of one of his great lectures. I hope you enjoy it.

[youtube http://www.youtube.com/watch?v=O8faXr6WhCM&w=420&h=315]

Insights From Jeff Bezos

[youtube http://www.youtube.com/watch?v=kA_0W4hIhuA&w=420&h=315]

Somebody sent me this video of Jeff Bezos being interviewed by Charlie Rose back in 2011. The purpose of the interview was to announce the new Kindle that came out at the time. In the first part of the interview, Rose really pushes Bezos on how the Kindle competes with the iPad. I loved watching the way that Bezos responds. Brilliant. If you don’t have time to watch the entire video, here are the key lines/insights for me.

• The Kindle doesn't compete with the iPad. It is the best device for long form reading. Amazon has made no tradeoffs in building the best product for long form reading.
• Amazon isn’t providing the experience, that’s Hemingway’s job. They are providing the ability to enjoy that experience.
• The number one thing that Kindle users are doing is reading Stieg Larsson. The number one thing iPad users are doing is playing Angry Birds.
• Reading a book on an iPad is like reading while someone is pointing a flashlight in your eyes.
• Amazon doesn’t want to be the 79th tablet. They want to be the best at what they do.
• He urges employees to not wake up worried about competitors, but to wake up obsessing about the customer.
• Amazon doesn’t force customers to pay for its own inefficiencies.
• Business is not a zero sum game. Competitors can thrive together.
• Amazon’s mission is similar to Sony’s missions when they started.  Sony’s mission was to make Japan a leader in building quality products. Their mission was bigger than themselves.

Groupon, Chest Pain And Consumer Behavior

It was unfortunate – but not very surprising – to see the news this week that Groupon laid off a portion of their 10,000 employees. If ever there was a predictable bubble, it was daily deals. But it was fun while it lasted, and you can see why there was so much overinvestment in the space. Groupon’s pitch to merchants was to ask them to take a loss by making a super compelling offer that consumers couldn't resist. The offer would generate tons of new customers that would come back and make profitable purchases for years to come.  On the surface, it seemed pretty compelling.

With the Groupon news in mind, I spent some time this week thinking about the problem of hospital readmission penalties in the healthcare industry.  For those that don’t know, the government is trying to improve accountability and the quality of patient care by imposing financial penalties on hospitals that have high rates of 30 day hospital readmissions.  Depending on the rate of readmission, the government will reduce Medicare payments by as much as 1%.  For an industry with very thin margins, this is a pretty big deal.

One of the major challenges with hospital readmission penalties is that now doctors have to not only care for the patient effectively during the initial encounter, they’re now responsible for changing the patient’s behavior after they leave the hospital.

Here’s an example: imagine an older man that doesn’t take care of himself.  He smokes, eats fatty foods, lives a sedentary lifestyle and hasn’t visited a doctor in years. One day, a pain in his chest becomes so severe that he is forced to check himself into the emergency room.  After spending a couple nights in the hospital getting treatment, he starts to feel better. When he’s finally discharged, the doctor recommends that he stops smoking, follows a cardiac diet, takes a prescribed medication, and visits a cardiologist for a checkup every week for the next 6 weeks.

But this is a person that is not used to doing any of those things. The problem that caused him to appear in the hospital – severe chest pain – is not an immediate problem for him anymore.  He feels fine.  So the hospital is being asked to significantly change the behavior of someone without the initial (and powerful) motivator in place. As a result, he’s very likely not going to follow the doctor’s orders and he’s very likely going to reappear at the emergency room.

It occurred to me that this is the fundamental problem with the daily deal industry.  Groupon has the same challenge that hospitals have.  Just like severe chest pain, their deals change behavior. Most of the people that buy half-off skydiving, or cooking classes, or services at the super expensive nail salon, weren’t planning to do those things until they saw the deal sitting in their email inbox.  But because the deals are so compelling (50%+ off) they bought them anyway and, as a result, Groupon was able to flood their merchant clients with lots of new business.

But it’s because the initial deal is so compelling that it becomes nearly impossible for Groupon to reliably deliver on their ultimate promise of bringing their merchants new, loyal and profitable customers.  Just like severe chest pain, the daily deal changes behavior.  It forces people to do something that they wouldn’t normally do.  But without a continuous and powerful motivator in place (like chest pain or 50% off) the doctor can’t get the patient to come in for an electrocardiogram and the nail salon can’t get the customer to come back for a second manicure.

B2B E-Commerce

Erin Griffith had a good post on PandoDaily titled, Whatever Happened To The Promise of B2B E-commerce. I find this to be a super interesting topic. In short, Erin argued that "the trillion-dollar promise of B2B commerce may finally be on its way."

Personally, I'm not so sure. I posted the following comment -- though for some reason it never got posted to the post, so I thought I'd post it here.

Great post, Erin.

Though I’m not sure I agree that b2b e-commerce is finally on its way.  There are multiple, inherent transactional differences between b2b and b2c that, I believe, make a transition to b2b e-commerce nearly impossible in the short to medium term. There are so many steps in a large enterprise’s buying process that cannot be replicated in a scalable manner online (customized legal agreements, reference checks, price negotiation, unique purchase approval structures, payment terms and the individual emotions that drive big purchases). Just look at the legal side for a moment. Most e-commerce sites have their own “terms of use” section that dictates the legal terms associated with the use of their site. Large enterprises will want to review and customize these terms of use based on their own policies, procedures and appetite for risk.  It’s very difficult for e-commerce sites to allow for this in a scalable way across hundreds or thousands of clients.

Now you may argue that e-commerce has come such a long way that technology should be able to replace much of this bureaucracy. But in a large enterprise each of these steps represent a task that is completed by someone with a job. So you can either eliminate those jobs or assign those individuals to work on something else. But just like purchasing, reorganizing non-strategic job roles for an unclear upside will take a long, long time. And in my view, real growth in b2b e-commerce is simply going to have to wait.