The Internet Retailer Web Design 2010 conference confirmed one of my long-held assumptions about the online retail industry: most ecommerce sites underutilize their metrics.

This is actually an understatement. Most companies, particularly small businesses with less than $10 million in revenue, barely use metrics at all. And they're missing out on huge business opportunities as a result.

By metrics, I refer to the page-level data about user behavior that can identify problems and unseen possibilities to improve an ecommerce (or any) website. This isn't about sku-level data and revenue per order; on a base level, every seller knows how much he's selling. This is about knowing how and why those items sell, and how a website is affecting performance.

Time after time at IRWD I asked a retailer about site performance, and each time I got blank stares or embarrassed grins. "We actually don't have any analytics installed," some people told me. Many others routinely gave a variation on, "Yeah, we have to take a look at it." Of all the people I met, I only spoke with one business that was able to recite to me some of its important data points and the efforts being made to improve on them.

Data comprehension may be the single biggest factor in getting incremental growth out of a site. By looking at analytics, a retailer can know what pages are underperforming, where fallout occurs, and how processes and displays can be improved. Simple, free or inexpensive tools can report everything from visits before purchase to the location and timing of mouse clicks, all of which are part of the smart retailer's arsenal.

But instead of building on these smarts, I got interactions like these:

"Hi, David, I was wondering if you could look at my website. I have two sites selling similar merchandise, and this one has only a third of the sales of the other one. This is the redesign I'm working on for the worse site. Do you think it will help?"

"Well, to start, have you looked at your analytics?"

"No, we have a Google account, but I just know that this site isn't performing."

"You have a site that's up and running and doing well. If you crack open your Google Analytics you can compare the data side by side and see where the lesser site is underperforming. That way you'll know what to attack. You're actually in a great position to fix it if you do that."

"But do you think this new layout is going to help?"

I don't know if that redesign will work, but I do know that the owner of the site is ignoring his own benchmarks. If he looked, he'd be a lot closer to the answer.

Why dive into a redesign without identifying targets for improvement? "Fix my conversion" is not a useful goal. "Make changes to the product page, which has a high fallout rate, to improve adds to cart while encouraging further exploration" is an actionable one. That actionable goal can be identified quickly and easily, but so few businesses are doing it.

Many, many questions raised at IRWD can be answered in-house with a thorough study of site analytics. Companies that ignore it are almost literally leaving money on the table.

Duane Reade introduced a new rewards program today. I happened to be in a Duane Reade this afternoon, where the cashier swiftly upgraded me to the new system and gave me a thick coupon book for my loyalty.

The pharmacy and quick-shop chain is promoting its new program, Flex Rewards, as a consumer-friendly upgrade. They cite the new system's non-expiring reward points and paperless redemption as the main improvements.

Which is great, until the consumer finds out the real meat behind the change:

What Rewards will I receive?
You will receive a $5 Reward for every 500 FlexRewards points earned.

The new program is more confusing and far less valuable. Consumers now get two points per dollar spent and the same $5 reward now comes at 500 points. Or, in layman's terms, after $250 spent rather than $100. Earning the five bucks just became two and a half times as difficult.

Flex Rewards also has a couple of gimmicks in the system, such as SuperSaver, which encourages customers to not redeem their points in exchange for bonus points back when they finally spend the credit. It's a cash-back system that feeds itself.

If any of this has heads spinning, I suspect it's by design. Duane Reade has devalued its loyalty program by a minimum of 60 percent. It cloaked the bad news in technical upgrades and new schemes that try to divert attention away from the devaluing.

With Flex Rewards, Duane Reade stands to give away a lot less value in 2010 than it did in 2009. If I had a stake in the company, I'd be pleased with the new program. As a regular Duane Reade customer, though, I'm probably just going to stop using my card.

The public release of Google's phone was news but not an event yesterday. (The New York Times used "some polite applause" and "shakes but doesn't upend" in its coverage headlines.)

Why? Because Google didn't physically make the phone.

In partnering with HTC, a company that produces cell phones for every US carrier and two different operating systems, Google ceded control of the overall experience. Never mind that the handset is slim and fairly attractive. It's also generic, and apparently imperfect. When David Pogue pushes your phone's home button, you really don't want it to fail.

There's a huge difference between designing and engineering a device, as Apple did with the iPhone and Palm with the Pre, and a company having a device "built to its specifications". Google was telling HTC, "We want our phone to do this," and HTC was putting the requisite componentry in place. This tends to minimize holistic product definition and by its very nature waters down the innovation. In contrast, Palm and Apple (and Motorola and Nokia, for that matter) manage the entire process, and their software is designed to complement the hardware, maximizing user experience. Google, a company that is strictly virtual, doesn't know how to do this.

Software companies that venture into hardware have to embrace the role of hardware manufacturer. This is true beyond smartphones: consider how Microsoft, which built an empire on software, hit a home run with its Xbox by controlling the end-to-end product creation. (Microsoft makes great computer accessories, too; I'm using a Microsoft keyboard and mouse right now.) But we never saw a Microsoft-branded PC produced by Compaq in the 1990s. All or nothing.

Google is a formidable company with incredible technological prowess. I'm not placing bets against Android just yet. The relative mediocrity of the Nexus One, though, is exactly what we should have expected.

With sources as authoritative as the Wall Street Journal confirming the pending introduction of a tablet computer from Apple, one can assume the cat's out of the bag for the big Apple news on January 27. But what does it mean?

I'm throwing my hat in the kill-the-small-laptop camp. The iPhone proved that people will use computing power in a portable manner and without a physical keyboard. Despite the name, the iPhone is indeed a computer, with a clever 3.5" form factor. And people use it as such. Indeed, Ai has ecommerce clients generating sales from iPhone browsers on non-mobile-optimized websites.

Given that, why not continue to redefine the portable computing space? Steve Jobs must scoff at netbooks, with their minuscule keyboards and compromised feature sets. Better to redefine the experience with a new kind of device. Just like the iPhone has redefined pocket-sized power, so too can the tablet redefine the small-laptop market.

Apple is shooting for the personal, casual computing market, folks like me who like to get online sitting on the couch and folks like Nathan who want a three-pound computer to travel with. It will be big enough to type on and clear enough for reading, gaming and web browsing.

I bet the tablet's pixels per inch will be impressively high, like the 160 ppi of the iPhone. Most Mac desktop and laptop displays hover around 110 ppi. An 11" screen at 160 ppi will provide almost the same amount of pixel real estate as a 13.3" MacBook screen does now. This will help minimize people's perception that they're giving up detail for size.

Yesterday I postulated to my coworkers that the 13" MacBook is going to disappear. But now I suspect it will turn Pro a few months after the tablet comes out. Portable computing power is important, and with a tricked-out technology package, the MacBook will differentiate itself. Expect MacBooks to shift in price from $1199 and up to $1499 or higher, with the tablet coming in around the thousand-dollar mark.

Whatever it turns out to be, expect irrational and unrivaled consumer desire and interest for it, on a scale that only Apple creates. Google's phone news is a business story: "Look at Google aiming for the smartphone market." But Apple's news is cultural. Which is why they may succeed in their latest attempt to change the game.

The big news in ecommerce this week is consumers' growing expectation of free shipping from online retail sites. It's no longer seen as a perk; people are instead planning their shopping around free-shipping promos.

This, of course, is leading to a big game of cat and mouse. Ecommerce sites are setting hurdles for purchases to get free shipping, hoping to make up the $7 or so in costs with increased sales. This in turn frustrates consumers, who look for ways to stock up on items, leading to lower purchase frequency, or who become frustrated and abandon their carts. (I watched my wife fall $0.04 short on free shipping last week and yell at the retailer's website.)

I'm curious to see where this goes in 2010. Does free shipping become de rigueur among mainstream ecommerce sites instead of promotional? Will hurdle levels shift? Or will discount programs alter to accommodate shifting margins?

I have become something of a skeptic when it comes to polls and surveys. While they are the theoretical best way to get aggregate viewpoints of a consumer or user base, people's inclinations toward self-perception make them inherently flawed.

Take, for example, this Accountemps survey on online shopping for the 2009 holidays.

"Most workers," the release says, "plan to browse on their own time, a new Accountemps survey shows. Nearly four out of five (77 percent) professionals surveyed said they are not planning to shop online while at work."

Isn't that a nice statistic for Accountemps to give back to its hiring firms? Staff are hard-working and focused!

Except it's probably false. For the survey, Accountemps had a separate firm interview 455 employees--a number of whom were probably concerned that their employers might be listening or getting access to the data, so they lied about it to sound good.

Other respondents probably said to themselves, "Well, I'll probably browse a bit here and there, but I won't actually shop until I get home." So they got to say no, which made them feel better about their dedication to their jobs. And some people just didn't want to admit that they goof around at work, so they answered the same way.

It's impossible to determine from my desk what those subsets do to the data, but at the least, they make the original results much more suspect.

The perpetuation of self-interest and positive self-perception is a common theme in polls. Ai recently received client research that said a celebrity spokesperson had only marginal effect on the opinions of the people polled. To which I thought: well, of course the respondents say this.

Few people want to admit to a curious stranger that Roger Federer's mug on TV is the reason they considered Credit Suisse for their asset management. But that image certainly influences people, even those who won't explicitly acknowledge it. (Nate Silver's marvelous poll aggregation during the 2008 election cycle reinforces some of this.)

Polls and surveys aren't going away, and the insights they contain are often valuable and impossible to otherwise discern. But the questions they seek to answer may not always be fully answerable by a conscious group of respondents.

PostClick Marketing Blog has an interesting post on agency cycles, and the way an agency spends too much time on tactics and not enough on concepts. The suggestion is to swap "how" and "what" and let 95% of a project be about idea generation.

Great sentiment, imperfect logic. Companies that focus too much on ideas get criticized for being too high-concept; they wind up perceived as unable to get things done. Conversely, of course, executional organizations have finite growth curves and not enough creativity.

The answer we've settled on is the continuous feedback loop. As PostClick notes, it is not enough to generate ideas up front, then move into implementation. Better to integrate idea generation into the entire process.

Here's how Ai does it:

1. Questions. From start to finish, everyone is encouraged to ask questions. How did a decision come about? What other options have been considered, and why? Is there a better way to achieve the proposed solution? We're always creating, not just doing.
2. Multidisciplinary meetings. Teams convene regularly across disciplines to discuss workflow and brainstorm solutions--a business analyst reviewing wireframes, or a tech lead discussing design feasibility.
3. Continual feedback. Stakeholders are invited to give suggestions throughout a project. This feedback often raises questions that Ai may have approached differently than the client. At these moments, the process shines: much like a writer and his editor, Ai's best client engagements benefit from strong feedback loops where tough questions improve the final project.

For us, it's not just about what versus how--it's about continuing to ask "what" during the "how," and vice versa. Maintaining a healthy balance between the two ensures projects, and their teams, remain creative and forward-thinking.

Steve Rubel: Five Incredibly Useful Things You Can Do Without Ever Leaving Facebook. "I am discovering that it's becoming a one-stop shop for many of my day-to-day activities," he writes.

The post strikes me as a retrograde observation. Not because Steve Rubel is any kind of Luddite, but because the online industry has, for more than 20 years, been trying to create a one-size-fits-all website. It still is. Indeed, it seems every big site aims to recapture the glory days of America Online.

In the 1980s, Compuserve and Prodigy and the like created online dialup communities. The winner in this space, of course, was AOL, which dominated for years. It became a destination for users and businesses alike. Every company in America needed an AOL presence and someone who could code in Rainman.

As the web's ubiquity overtook AOL, websites began cropping up that attempted to reinvent the paradigm by ... emulating AOL. Yahoo and MSN (and many smaller peers) created integrated online presences where features and options abounded and stickiness became the prime measurement.

Then search came to prominence and splintered people's site use. Google's success as an ad platform allowed Google Labs to create dozens of experimental services, all of which served to make Google more of a catch-all, and more like ... the old, closed-wall AOL, just with outbound links.

Which brings us to 2009, where Facebook has captured the exact same mindspace as, yep, AOL. What makes Facebook interesting these days? Basically the same things that made AOL a star a decade earlier.

• private messaging without an external email client: just like AOL!
• live chat: just like AOL!
• integrated games and shopping: just like AOL!
• every company feels a need to be there: just like AOL!

AOL was eventually done in by a lack of openness and charging for options that were free elsewhere. So far, Facebook has avoided those mistakes. It will be interesting to see what social and economic forces drive its future--and whether it ultimately becomes something other than The Next AOL.

The little coffee shop on West 21st Street has, dangling under its potato chip rack, a row of flip-flops.

I pointed to them today as I bought my pretzels. "Sell a lot of flip-flops?" I asked the owner, an affable woman who's always manning the register.

"You know, we open sometimes on Saturday nights, when the weather's cool," she explained to me. "And all the clubs around here, they don't let women in wearing flats. So all these girls come out after wearing their heels all night, and they say to me, 'Do you have flip-flops? I'd pay anything for a pair of flip-flops!'

"So, we got some flip-flops. I know how they feel--I once spent $20 on flip-flops after a night like that. But they're all college girls, you know? I don't want to rip them off, so I just charge five dollars."

Have your customers voiced unexpected needs to you? How are you solving their problems?

Adobe to buy Omniture for $1.8 billion.

We observe this transaction with interest, as Ai is a certified Omniture partner, and many of our clients are on the Omniture platform. Omniture has grown by leaps and bounds in the years we've worked with them, and they have built an excellent software suite that proves useful on a daily basis. (We also, of course, use Adobe products regularly.)

This is probably its main complement to Adobe: creating software that its users embrace as part of their daily workflow. Beyond that, this author finds the acquisition curious. Omniture is all about data--aggregating it, processing it, manipulating it. Adobe's software, on the other hand, is about creativity, and empowering users to do better, more attractive work.

I suppose there's a similarity from that empowerment angle--both the Omniture suite and Adobe's core products enable people's work to be more sophisticated than they would be on their own, or with a competing product.

The inevitable culture clash may arise in time, too. For now, I'm sure Omniture and Adobe will run independently. But as the businesses merge, it will be interesting to see whether, and how, Adobe's creative California culture will absorb the data wonks in Utah that powered Omniture's expansion.

Adobe is calling it a merger of art and science. I suspect Wall Street knows the truth.

Here's some smart CRM: Staples tracks in-store purchase history by credit card.

I recently found myself with a (rather expensive) box of printer ink for a printer I no longer use. The ink was not a terribly recent purchase, and I had no receipt for it. But I didn't need it, and I knew it came from Staples.

So off to Staples I went, ready with my best pained eyebrows and apologies. Which were swiftly interrupted by the cashier, who asked, "Do you have the credit card you purchased it with?"

"I assume this is the card," I said, handing over my American Express. She swiped it into her register, confirmed my name, found the ink in my purchase history and promptly processed my refund. No signature required.

This system must have taken much effort and expense on Staples' part. But it's so simple and rewarding, it deserves to be implemented elsewhere.

Ecommerce startup Alice got some nice business press last week around the launch of its site.

The concept, say the founders, is a novel one: they're acting as a clearinghouse for CPG products, and compiling consumer data to share back with manufacturers. Rather than buy wholesale and sell at retail, Alice is only a platform, taking a fee for sales. Manufacturers control the pricing, and the fees pay for across-the-board free shipping.

On the surface, this sounds like an innovation. But is it really so different from what has come before? Amazon has a wealth of services designed to let companies sell direct to consumers, aggregate data, and defer shipping responsibilities--just like Alice.

Other not-quite-a-third-party structures have been attempted online, too, just not with exactly this structure. Consider Gloss, which was a "brand neutral" ecommerce site owned by three different cosmetics companies. Gloss.com operated as an independent entity, with the three owners paying relative shares of the operating costs (and the profit, theoretically). Sounds a lot like Alice, just with a different ownership structure.

Alice is a novel approach to retailing as an ecommerce site; the UI has lots of interesting details that will be reviewed here shortly. But the business model, while clever, is less than all-new.

As it turns out, keeping 25 computers on 24/7 so that people can remote in actually wastes a lot of electricity. I have been looking into ways to make our use of electricity much more efficient, so that we can both reduce our carbon footprint as well as knock a few bucks off the monthly electric bill.

I'm attacking this two ways. The first way is to get all the workstations to sleep when they aren't in use. The second is to use current virtualization technologies to reduce the number of servers we have.

The idea is that most servers are underutilized, and that you can take better advantage of your hardware and reduce energy usage by running several virtual machines on every real physical machine. The server stuff is going to have to wait until after I've dealt with the workstations. But I am hoping to be able to invest any money I save from making the workstations more efficient into the server consolidation project.

The first step in putting the computers to sleep at night was actually enabling Wake on Lan on our Windows XP Dells. Wake on Lan is not enabled by default in the BIOS, nor is it enabled in the power management settings for the network adapter in Windows. In Windows, go into Device Manager, find your NIC, and go to its properties. There will be a power management tab. Make sure you also check off "only allow management stations to bring to bring the computer out of standby," otherwise the computer will wake up for any network activity, not just a magic packet.

The second step was to figure out a way to make it easy for my users to wake their computers up if necessary. Remembering the MAC address of the NIC on the computer is not exactly practical.

I looked around for a nice little program to keep track of computer names/mac addresses, and I found something quite ideal for our network. We use Small Business Server 2003, and there is a product that integrates Wake on Lan features right into our SBS's Remote Web Workplace. It will cost me some euros when the trial expires, but in my opinion it is worth it to integrate a Wake on Lan feature right into an application my users are already used to using. It's called WOL4RWW, and is available from WESSTools.com. I've already tested this on a couple of computers and it works great.

After making my computers capable of sleeping and waking up, I needed to figure out a way to actually enforce settings that put these computers to sleep every night. There didn't seem to be a built-in group policy in Server 2003/Windows XP. It looks like the easiest way to handle this is going to be to install a little piece of software called EZ GPO on the XP machines. This will allow me to manage their power settings remotely. I hope to find time to do this in the next week or two.

The last piece of the puzzle, which I haven't looked into yet, is when Windows Update is going to run if the computers are sleeping all night.

After I'm done with setting up and testing the XP machines, I believe I can then handle Vista and Windows 7 machines via a GPO. After that, I will find a solution for our Macs.

If you're interested in making sure your home computer or business network is as green as possible, you can find a wealth of information at the Energy Star website.

Ai is pushing live the latest version of the Continental Airlines International Restaurant Week website today. Its rollout (the third annual campaign we've done for them) is a reminder of the impact an integrated marketing plan can have on an online project.

For Continental, the website is the home base of an annual promotional campaign. International Restaurant Week leverages the cuisines of twelve of New York's finest restaurants as the airline "takes you to even more places." This year, the website showcases a signature dish contest, judged by Tom Colicchio, as well as user-generated ratings and reviews.

But what will make this campaign successful is the steady flow of traffic generated by Continental's marketing efforts. This year's promotion included prominent, handsome advertising in magazines and newspapers in New York, where the promotion is taking place. Targeted emails were sent to Continental OnePass list members, and a promo tile is in place on the Continental Airlines home page.

All this is creating strong traffic to the site. Continental's Restaurant Week is a short-term promotion; it can't wait for natural search results or rely on the press release to pull people in. So Continental worked proactively, and the result is a steady flow of users that will stay engaged for the duration of the promotion.

With targeted emails, print ads and online messaging, Continental is reaching a defined market effectively. It's a powerful combination that should be considered for any marketing initiative with well defined goals.

Monday's news from Major League Baseball's online team reminds us how far the digital world has to go to replicate offline revenue streams.

The news, on its face, was good: MLB has made nearly $1 million on its iPhone app since launching it early this month. It actually grossed $1.3 million, which puts it just shy of the seven-figure mark after Apple's 30 percent cut. Silicon Alley Insider says MLB's repurposed content makes this a profitable enterprise.

And yet. A million dollars sounds good until one considers that MLB makes tens of millions of dollars per year on its national TV contracts, and hundreds of millions more locally. The YES Network alone brought in $360 million last year.

MLB's approximate $910,000 net revenue on the MLB app barely buys a decent TV campaign on one of its local affiliates. Heck, it wouldn't even pay Pedro Feliciano's salary.

With all the doom and gloom about old media floating around, it's no surprise that media outlets are looking for good-news stories. But it will take a lot more than a million bucks from the iTunes store to make up for the potential lost revenue as people move from radio and TV to webcasts.

The news that Yahoo is shutting down Geocities got me curious about how Yahoo did on the deal. A decade later, was Yahoo right to make the acqusition in the first place?

I did some research, some math, and a bunch of IM brainstorming with Tristan Louis and came up with the following.

The basics: Yahoopaid $2.87 billion in stock for Geocities in May 1999 after announcing a deal that January at $3.57 billion. Adjusted for splits and inflation, that's the equivalent of $1.54 billion in Yahoo stock today, or $1.2 billion in 1999 dollars--a far more reasonable figure than the dot-com-inflated sums that Yahoo and Geocities swapped. Considering that the transactions were all on paper, the deal already makes some sense. (Tristan's initial calculation put the value of the 1999 stock at $155 million--a steal!--but that may have been done without factoring in Yahoo's three stock splits.)

But did those billions pay off?

First, consider direct revenue. Geocities had $7.82 million in revenue the final quarter before the acquisition. Taking into account traffic trends for the years following, and estimating revenue based on industry flows, the total revenue from Geocities display advertising--for 10 years--comes to around $320 million (not inflation-adjusted). Not a lot compared to the $2.87 billion purchase price, but at least Yahoo got back 10% of its stock swap in cash.

Yahoo Geocities also had a premium model, with Plus members paying $4.95 a month and Advantage members $19.95. Yahoo never released membership specifics, but we can generously estimate that 1% of Geocities' 14 million members signed up for a larger model, with a small segment going to Advantage. That program still exists, which means there's some incremental revenue even now. Geocities Plus probably pulled in more than $8 million in its peak year, which extrapolates to roughly $60 million total since its introduction.

We can assume Yahoo Geocities had all sorts of marketing partnerships, each of which generated as much as $250,000 per initiative above and beyond basic ad revenue. Let's generously peg this value at $20 million total, mostly during Geocities' peak usage years.

So that comes to $400 million in revenue. Decent money, but far from profitable on its own.

Then let's consider the traffic implications. In today's world, the traffic figures from the 1990s are laughable: Geocities was the fifth busiest site on the Internet in June 1997... and four months after that they signed up their millionth user. Then again, in the era of rapid growth, though, paying for traffic made sense. By the time the sale closed, Geocities was up to 3.5 million user sites and 19 million unique users.

From that angle, the sale paid some robust early dividends. Yahoo's traffic increased by nearly two-thirds following the acquisiton. That's a lot of new eyeballs seeing the Y! and becoming familiar with Yahoo's name and, ultimately, its other services.

Yet Geocities peaked in 2002 and has been in slow decline ever since. After hitting 27.7 million in March 2002, the numbers kept dwindling: to18.9 million in October 2006, then 15.1 million in March 2008, down to 11.5 million unique users last month. So the long term didn't play out perfectly, thanks to more robust social networks superseding Geocities' early style.

With all this hindsight, it is doubtful that Geocities can be called a profitable acquisition. It probably can be considered a break-even, though, given the number of different revenue streams and added Yahoo network traffic the site brought.

Geocities is also notable for what it did for Yahoo off the balance sheet. The bold acquisition of a social site, and its subsequent integration with Yahoo, paved the way for future site aggregations. Yahoo's purchases of Flickr and del.icio.us show Yahoo's continued commitment to community, and its willingness to assimilate other networks with its own (albeit with varying degrees of success).

Indeed, Geocities can be considered a hallmark of Yahoo's style and a bellwether in its corporate history. For better or worse, that alone makes the acquisition a solid one.

Internet Retailer's lead headline today: Web sales at Macy's grow 29% in 2008 while total sales sink 7.7%. IR calls this "blow-out online sales growth" in an otherwise dismal year.

The ecommerce industry continues to defy macroeconomic trends. Holiday sales dipped 2.3% industrywide in 2008, but sector sales in goods like apparel and luxury items dropped as much as 30%. Meanwhile, Macy's managed to boost its online sales by nearly a third.

Macy's isn't alone. Ai's ecommerce clients managed to do decently in 2008. One multichannel client saw 37% sales growth during its busy season; another grew by a whopping 91% for the year versus calendar 2007.

What does this mean for the industry as we press deeper into 2009? We here at Alexander Interactive have some ideas, and suggestions.

• Pressing forward. The down economy means almost every retailer is struggling this year. Budgets are tighter and staffs smaller. But the online sales channel continues to perform, which means it needs to be properly maintained as a profit center. The right balance of promotional activity and site innovation will drive traffic and keep the online sales channel strong.
• Differentiating. This year is going to be remembered for bargain-hunting and price-slashing. How to compete? By creating a user experience that is welcoming and memorable. Repeat customers will reduce acquisition costs and maintain revenues as the economy drifts. Companies willing to invest this year are working on improved usability, better communication and smoother customer service paths--the touches that turn browsers into buyers, and customers into satisfied ones.
• Creating opportunity. With many retailers pulling back, competition should decline this year. Affiliate and search marketing costs are going to dip. Smart companies will press forward, maintaining or increasing market share in the one channel with growth potential.

One of our designers recently used her new Sony digital camera to take some office photos. As she did not have the USB connector with her, she looked for a device to pop the Memory Stick into, so she could upload her photos onto a computer. Unfortunately, as we found out, the technology of her camera was too new for anything else in this office.

Sony, it seems, is playing hard to get with its devices. This brings up the issue of vendor lock-in, where a consumer must incur the setup costs to adopt a new product that a vendor is offering.

The Sony Memory Stick in our designer's camera, a proprietary design, is completely different from the one in my own Sony camera. Further investigation shed some light on the matter, in that Sony had created a new kind of Memory Stick, dubbed, "Memory Stick Pro Duo." Wow.

This is a completely new technology--the new cards can hold a larger amount of data and have more functionality to work with video capturing and file-transfer rates. Awesome! I am at least glad that Sony is keeping up on their game to push advancements in technology. But they are forgetting about many of their loyal consumers, not to mention other electronics manufacturers who have built-in Sony Memory Stick Pro slots in their products.

What Sony has done is separate its consumer base. Older media will still function but are not compatible with their newer ones. Even the USB cable that comes with a newer model of Sony camera is no longer compatible. I can make a reasonable assumption that a year from now, if I needed to purchase an older model Memory Stick Pro card for my personal camera, I would have to buy it used or refurbished, or I'd simply have to buy in to Sony's new technology.

This is where vendor lock-in comes into play. If I become dependent on a technology, but said technology advances, I am left with little choice but to upgrade if I want to continue using the product. I could switch to another brand, but in the end I would still be spending money to transition to a new product, whether with the same vendor or a new one.

I have seen similar issues arise over time. Technology changes, which I both understand and accept. Advancements must be made to improve the quality and functionality of a growing technological industry. As a result, consumers are almost forced to upgrade their devices and technology in order to keep up with the revisions that electronics developers and manufacturers come up with.

The online-offline impact of user experience is vital in today's economy, and nowhere is it more apparent than in the travel industry. I experienced the best and worst of it on a recent business trip, and the learnings I encountered were enlightening.

Airlines, like many other businesses, have become accustomed to controlling the information flow. Curious about gates, seats, flight times, or other details? They'll tell you when they're ready to tell you. But the Internet has changed that, and continuing improvements in ease-of-use and access have forever changed the game.

Organizations today need to be as aware as their consumers of data streams and information sources. They need to be proactive and accommodating. Consumers want their needs addressed by people who are as informed as they are. The alternative--the old way--can be galling.

My Story

Here's what happened to me: I had a trip planned from New York to San Francisco, originating at JFK on a 6 p.m. flight. My departure day was filled with weather-related delays. Morning flights were taking off more than three hours late, although they were pushing out from the gate on time, leading to "on time departure" proclamations by the airlines.

When I checked my flight status around 2 p.m. my airline's website declared my flight was on time. Skeptical, I checked the condition of JFK on faa.gov, which revealed five-hour ground delays due to weather. But the airline's website begged to differ, so I called the airline directly.

On the phone, the customer service representative repeated the flight's on-time status. I asked her to investigate the difference between the airline's estimates and the FAA's. She put me on an extended hold. While waiting, I checked my flight status on the airline's website again, and discovered my flight had been canceled!

When the rep returned to the line, I asked for alternate arrangements. She told me the airline was filled to capacity and couldn't honor my Monday ticket until Wednesday, which would ruin my trip. The rep referred me back to the airline's website to edit my plans, but the site declared my flight ineligible for a weather-related refund. At the same time, the rep on the phone put me back on hold to look for other options, and wound up disconnecting my call. The airline had stranded me in two different communication paths.

I ultimately booked a flight on another airline for the next day (at more than twice the price). An hour or so later, I was able to get a refund from the original airline's website.

Nearly two hours after I discovered my flight delay, and 90 minutes after I rebooked my flight, I received an automated message on my home phone advising me of the canceled flight. I almost screamed in frustration.

The game has changed

An airline's only real differentiator is service. JetBlue stands out for its leather seats and TVs; Virgin for its hip, knowing accoutrements; Southwest for its easygoing, cheeky demeanor. But every airline has the same base concerns: comfortable flights, timely service and good communication.

What does my recent experience say about my first airline's service orientation? Aside from the obvious--that the airline has some serious internal issues to resolve--I spotted several lessons that can be applied to all businesses, not just the airlines.

• Businesses no longer control information flow. A smart company will accept this and learn to work with it. Whether it's me looking at faa.gov or consumers Twittering issues amongst themselves, news and facts about a company's offerings are no longer dictated solely by the public relations staff. Companies that insist on rigid lines of communication will find themselves outsmarted by savvy consumers and disparaged by uninformed ones.
• Nimble trumps rigid. My airline couldn't put me on an alternate flight within two days of my original plans, and it never considered putting me on another airline and sharing my revenue. My company's travel service couldn't find a replacement in its system for under $1000. Yet I booked myself on Virgin Atlantic, via its website, within minutes for far less. The folks looking to me as a customer could not help me spend my money with them, because their basic systems didn't allow flexible thinking.
• Responsiveness is everything. Two hours to inform me about a canceled flight is unacceptable. Losing my customer service phone call and not calling me back is, in this circumstance, unacceptable. The airline's website not acknowledging my canceled flight? Unacceptable. Discerning consumers will avoid companies that make these kinds of mistakes. Firms that get communication right--on time, proactive, and helpful--will win.

I've spent the morning fascinated by Swoopo, a new (to the US, at least) online auction site, which is both more and less innovative than its peers--and a great business model case study.

The site turns eBay's successful auction model on its ear. eBay uses fixed-duration auctions, free bids, and sellers' fees for revenue. Swoopo, in contrast, sells bids to buyers, who then bid in 15-cent increments on products. If an item gets a bid in the final 15 seconds, the end time is extended, giving other bidders a chance to dive back in.

This is at once radically different--from eBay--yet more similar to the traditional auction business. In the real world, auctions don't stop short at 10:13:32; they go until the high bidder has outlasted the competition. Swoopo allows this to happen.

Placing the operating-cost burden on buyers is a shift as well. With bids costing 75 cents each, buyer aggressiveness is artifically limited; the multiple bids required to win a typical auction raise the final cost to the winning bidder. Interestingly, competing (losing) bids help subsidize the winning buyer, which may deflate prices.

The open-ended auction timing is what fascinates me most. I watched a Playstation 3 controller auction on the Swoopo home page ratchet up from $23 to nearly $41, all in 15-cent increments, for several minutes before the auction ended. Sniping is eliminated, and in its place is a tense few minutes and frequent page refreshes. And, most likely, a handful of additional bids, each adding 75 cents to Swoopo's bottom line.

Swoopo has a remarkably clever (or truly wicked) business concept. It's also beautifully timed. As eBay evolves away from auctions, the market is probably ready for a savvy competitor to nibble away at market share.

Expect several Swoopo (and eBay) competitors to appear in the next year or two, all with new twists on the auction model. And keep a watchful eye on eBay, which may or may not realize that its auctions, while slowing in growth, are the make-or-break business proposition of its flagship.

Update: this write-up of Swoopo is worth reading, as it notes the clever (if insidious) model behind the business, and also exposes some of Swoopo's questionable business practices, which I hadn't caught on first observation. "It's not clear that Swoopo even has the items they auction; they appear to sell first, then use the money they gain from the completed auction to buy and ship the item. Furthermore, they have a clause in their Help under Delivery and Shipping that lets them ship 'equivalent' items." The post later calls Swoopo "pure, distilled evil," which may be pushing it a bit, but point well taken.

The latest news from the world of ecommerce is that the weekend was much better online than it was elsewhere. Sales rose 13% on ComScore's Black Friday-through-Cyber Monday annual index--not a huge number in online terms, but strikingly robust when compared with the overall 4% retail decline in November.

Some tips for ecommerce sites looking to maintain the pace through Christmas:

Compete on price. Ugly, and the last thing I usually recommend, but when the New York Times is running 1000-word articles on coupons, penny-saving is a mainstream fact. Use discounts and promo codes to make customers comfortable with your price points.

Accommodate. Comfort levels are always a differentiator: extended return policies, prepaid shipping labels, and custom order requests will make people feel good about buying from you.

Don't run scared. In this environment, customers are getting skeptical of sites with continual "Buy today!" come-ons. Maintain a consistent voice and use promotions in the typical manner, so people aren't spooked away from completing a transaction.

As mentioned previously, a successful, happy purchase now can lead to low-cost repeat business leads in 2009. Despite today's challenges, retailers must avoid sacrificing the future.

How many times this weekend did someone warn you not to buy gift cards this holiday season? I bet the warning came with mention of an email that had in it a crazy long list of store closings. Indeed, a million people are saying the same thing right now.

Never mind that the email in question is misleading at best and fear-mongering at worst. How quickly did it spread? How deep was its impact? How hard will it be for the stores in that email, unwitting participants in a national red flag, to undo the damage contained in that one email? How many people do you know that will give cash instead of credit this season?

Bad news travels fast, even when it shouldn't. Companies today must work twice as hard as they once did to monitor, repair and prevent the spread of misinformation. One angry customer can affect a million potential shoppers (much as one happy customer can reach a million readers too, only far more effectively).

Today's consumer is carefully weighing options on every spending decision. Service and positivity will be more important than ever in earning trust and repeat business.

Techcrunch posted a great item on online video penetration earlier this week. The numbers are both inspiring and sobering.

Among them:

• YouTube is streaming 5 billion videos per month
• Only 4% of those videos support paid advertising
• Online video is generating ad revenue at one-tenth the CPM of television ads
• So far, only 1.4% of video watched by Americans is online
• The online component is expected to double by 2010

According to research firm NPD, Apple's iPhone was the best-selling cell phone in the U.S. in Q3 2008.

Which, frankly, is remarkable: a company that didn't make mobile phones until 2007, and which introduced its phone at a staggering $599 price point, has in less than 18 months come to dominate the market.

Perhaps Apple isn't the biggest cell-phone maker overall; that's left to mobile-phone companies that produce multiple models. But in having the best-selling, and arguably best, product in the industry has completely altered the landscape.

The one-two punch of the iPhone and iPod underscores Apple's incredible product strategy. The company creates a product, optimizes the user experience, markets it like mad, and basically comes to own the product segment.

A decade on, iPods still represent more than 75% of the portable music device market. The millions of iPhones suggest that Apple is succeeding in its goal of becoming the default option for consumer-grade smartphones. No other product--from video game systems to household electronics to automobiles--has such dominance from a single player with narrowly focused product segments.

This is now a company that plays to win. It's a far cry from the Macintosh era, when Apple was content to make products that were simply better than the competition. Now they are the best, and the marketplace is responding in kind. No wonder so many companies look to Apple as their aspirational benchmark.

The blogosphere has noted at length recently the prevalence of sad stockbrokers in news item photography in recent weeks.

The stock markets finally had a good day today. To support the story, Yahoo News used this accompanying photo:

I find the pricing of the new iPod Touch interesting in light of the current iPhone pricing models.

A new 8GB iPod Touch, with all the functions of an iPhone except the phone, costs $229. A new 8GB iPhone, meanwhile, costs $199 before the data plan is factored in.

AT&T subsidizes iPhone prices to Apple in exchange for driving sales, at rates commonly assumed to be $325 per phone sold. This means Apple sees revenue of $524 per iPhone sold but only $229 for an iPod Touch.

Does this mean the phone and 3G capabilities of the iPhone cost Apple several hundred dollars per unit in production and R&D? Are the core components inexpensive enough that the iPod Touch provides the same profit margin? Or is the iPhone simply an outrageous cash cow?

OK, so I fully understand the copyright implications behind the bald-faced ripoff that is Scrabulous, and owner Hasbro's insistence that its violators cease and desist, which led to the Scrabulous Facebook app going offline. What I don't understand is the way Hasbro is going about its business.

Why, if Scrabulous is so popular, has it been unable to forge an agreement with its creators that leverages the traffic?

Why did a lawsuit get Facebook to shut down the app, while the standalone Scrabulous site continues to chug along unabated?

Why, after many months of legal wrangling, did Hasbro choose yesterday to get tough with Facebook directly?

Why wouldn't Hasbro get its own Facebook Scrabble app out of beta, and check its scalability, before the Scrabulous C&D overwhelmed the Scrabble beta, knocking half a million Scrabble players offline?

In other words, why is Hasbro alienating its users?

Scrabble has a fanatically devoted consumer base. People play competitively, casually, asynchronously--however they can play, they will. Alex used to play via text renderer before the graphic apps launched; I play EA's stupid Scrabble iPhone app that doesn't have a good competitive setting, even though I lose by 150 points every game. A friend of mine taps (tapped) into Scrabulous continually throughout the work day.

Point being, people love their Scrabble. They played Scrabulous simply because it was the best option on the market. With their platform knocked offline without a viable alternative, 500,000 devoted Scrabble fans are flat-out livid, and their devotion is being tested. The same people that love their game have pushed the official Facebook app to a 1.3/5 rating, and the discussion board is full of anger.

Hasbro could have been a hero: test its app's scalability, make streamlined play, and invite Scrabble fans to play on the authentic platform when it was ready for broad release. Only then should they have shut down Scrabulous, forcing people to make a comfortable transition. Instead, their users have lost faith. It will be interesting to see how long their disillusionment lasts.

Update: Apparently the official Scrabble app was hacked yesterday. Which is appropriate. Also in this article: "Analysts say the blow-back from Scrabulous fans, although painful now, will probably be temporary." Which is probably true, and somehow disappointing.

My wife bought an iPhone 3G on Friday morning. To do so, she had to have a friend sweet-talk her way into cutting a long line at our local AT&T store. My wife then took home a partially activated phone and, like everyone else, waited hours to get it to work.

Much has been written about the botched iPhone activation process surrounding the 3G/2.0 launch this weekend. But the entire experience of buying an iPhone is bordering on broken.

Apple generates extreme amounts of hype for its products, and the gotta-have-it nature of its launches creates untenable demand curves. This leads to a scarcity effect that, for Apple, has been hugely beneficial in its promotional efforts, and in its bottom line.

How should the user experience of first-day demand be viewed?

To hard-core fans, buying an iPhone is a singular thrill, complete with risk/reward and time/money trade-offs. Scoring an iPhone on Day One gives a person bragging rights, an invaluable perk atop the value of the phone itself.

The millions of iPhone buyers that don't want this experience are stuck waiting until the hype dies down. But despite their disinterest in the crowds and lines, they probably don't want to wait.

The iPhone appeals to Americans' overwhelming desire to be first to experience something. Movies generate nearly half their box-office sales the first weekend; albums' biggest sales come the week of their debuts. (Internet geeks know this feeling all too well.) This now applies to, of all things, a cellular phone, as I myself experienced last summer. (Full disclosure: despite my continued criticism of iPhone trends, I remain a satisfied iPhone owner who bought his phone on Day Two last summer.)

But scarcity and "firstness" can combine in ugly ways. To wit, my wife's friend cutting a long line to get a coveted phone within hours of its release, a scenario which no doubt occurred elsewhere. This leads to even greater frustration for those waiting on line, and whose firstness is being usurped.

Layer onto this the technical problems Apple experienced. How does it feel to purchase a brand new, unusable phone? To be forced to open a sleek device and remove its SIM card just to make phone calls on an old phone? For some the first-day difficulty dissolves into the background as the satisfation of the iPhone UX takes hold, but for others the memory, and dissatisfaction, remains.

And don't forget the basics. AT&T has not worked out a system for transferring SIM card data into an iPhone, so lengthy address books are obliterated, requiring immediate data entry. And the iTunes paradigm creates multiple payment paths: to AT&T for phone services and to Apple for everything else. Perhaps it has to be this way, but it's an ungainly system for users who want to analyze their usage patterns and costs.

This is not to say that the iPhone isn't a masterful device (it is) or that Apple could have done much differently (besides staggering the 2.0 software rollout, not really). It's simply an observation of the sociological effects of consumer demand, and the potential drawbacks of immersing oneself in said demand.

Remember, when all is said and done, it's just a phone.

Imagination is a scary word in business. It raises images of finger painting and story time. It threatens business people with the onus of being creative - a place that may be out of their comfort zone. There is a constant search for repeatable formulas that can be brought to bear on business decisions; formulas that relieve business from the necessity of periodically re-examining the fundamental assumptions the form the foundation of their day-to-day activities.

Imagination, however, is the critical ingredient in business success. Imagination:

1. Allows one to see past the existing context, the ideas and assumptions, that form the foundation of the many day-to-day activities of business. This is creative destruction.
2. Allows for perception of the larger environment - the big picture. This shows the fundamental market and societal forces bearing down on the business.
3. Allows for a synthesis of a new context, one that is more in alignment with the larger environment than the old context.

AT&T has officially detailed its 3G iPhone pricing, and it's actually a bit worse than I noted last month.

The cost of data has gone up $10/month, as previously discussed. What I forgot to include was the loss of free text messaging--current owners get 200 SMS messages included in their $20 data plan. Now those 200 texts cost an extra five bucks.

Redoing the comparison, what I had outlined as

Old: 399 + (24 x 20) = $879
versus
New: 199 + (24 x 30) = $919

is, for users interested in the same level of access, actually

New: 199 + (24 x (30 + 5)) = $1039

Sure, the price increase includes the upgrade to 3G service, which can rightly be considered a premium. But the pricing strategy feels almost bait-and-switch-esque in its execution. They're trumpeting a $200 savings in the price of the phone, yet users are paying $160 more for usage.

Ironically, what is classified as a win for the mobile phone industry--Apple's moving to a subsidy model to make its prices more attractive--ultimately leaves AT&T with a horrible jack-up-the-prices publicity nightmare on its hands.

See you when the third-gen comes out in '09.

Update: AT&T is not raising data rates on original iPhones with new activations, suggesting that the 3G network is the justification of the price bump. Well, that and the fact that they already made their money on the profit split of the initial iPhone sale.

Can lightning strike the same place twice? Can we get some more angels to dance on this pin? How about re-creating the PC demand explosion on another hardware platform, hopefully resulting in the same wealth creation that coincided with the PC revolution?

Hm. I think I'll take the angels. Looks easier.

The 90's was filled with venture capital firms looking for someone to be the next Microsoft. The effect of that particular tornado was so wide and so long lived that most people lost sight of what an anomaly it was. People kept making business plays based on creating an equivalent to the PC explosion, while glossing over the fact that the odds of doing so were quite a bit worse than winning a lottery. In a lottery, at least someone is guaranteed to be the winner. It could be a long time before something like a new hardware platform explosion occurs again.

Let's look at the forces that combined to create the original Intel-based IBM PC Clone + MS Windows market explosion:

• Rapid standardization of business on an open platform (which was open by accident: it was based on the PC reference specification put out by Intel)
• A proprietary product (MS Windows) was attached to the explosion, but only because it was a significantly undervalued part of the supply chain. No one had thought seriously about an operating system for a computer as the high ground in technology before then.
  
• A radically open platform for application development. For a retail-level offering, there was a remarkable lack of centralized control over what you could run on top of it. You didn't need Microsoft's, IBM's, or anyone's permission to write an app.

Everyone is all abuzz, as they always are, about Apple's latest product news, in this case the $199 3G iPhone. As expected, the focus is on the price: $199 for an iPhone! What a deal!

Yet it's not that great a deal. The entry price has been lowered but not the true cost. Of course, Apple and AT&T know this; it's the foundation of the cellular industry, and AT&T Wireless is happy to exploit it here.

Full disclosure: I am a wildly satisfied iPhone owner. I'm not buying the new one, though, in part due to the economics. Here's why.

The current (now previous) iPhone cost $399 for the device and $20 per month for a required AT&T Wireless data plan. Over the life of a two-year (24-month) contract, the total cost of ownership amounts to

399 + (24 x 20) = $879

This number excludes taxes, regulatory fees and marginal inflationary adjustments, but it's an accurate gauge of what Apple and AT&T get from the consumer across two years.

For the new phone, the price drops to $199, but the monthly data fee has risen to $30. Sounds small, but over the course of two years, guess what?

199 + (24 x 30) = $919

By the end of two years, total cost of ownership for the new phone is actually higher for the half-price iPhone. Apple managed to get monstrous press coverage of its $199 price point with little mention of the data charge, which substantially affects the equation.

Now, I'm obviously simplifying a conversation with many other variables. (For example, over two years, "real cost" including inflation and float may benefit the monthly plan; people who renew contracts in less than two years have altered ownership costs; etc.) But my point is simply put: list price and true cost are not the same, and the 3G iPhone is no cheaper than its predecessor.

When I started working at Ai there were about 6 people. Now there is about 40. In speaking with a colleague yesterday, I stumbled upon the essential mechanism of a scaling company: breakage. A scaling company is one in which good, working processes break. Continuously.

The mechanism itself is simple: business processes put in place when there are 6 people stop working when there are 12. Processes that work at 12 people then strain under 24. Processes at 24 fail at 35. Failing processes are a normal part of a growing company. It's healthy. Painful, but healthy.

The role of good management is to be ready for process failures and respond actively: either by adjusting or replacing business processes to fit the needs of the company at its new size. Unfortunately, this can't be done prematurely - it can be just as destructive to roll out a process that is optimized "too large" than it is to cling to one that is optimized "too small". The balancing act is to wait until the appropriate time to adjust a business process, recognizing that occasionally it will feel like overkill when it is initially implemented.

The other factor that can be easy to overlook is that there are people involved. Processes shape people's jobs and thus their experience at work. If a person's job description changes as a consequence of a process adjustment, it can be interpreted as a change in their prestige or status. Great care needs to be taken in order to not unduly ruffle feathers in the pursuit of a working organization. The people have the same value they've always brought - its the organization that has changed.

Micro-payments.  Cool huh?  The term was thrown around for awhile as the solution to content providers looking to find a revenue stream.    People could show up on a website and buy some content for a tiny amount - insignificant to them.  But the tiny amounts would add up and the content provider would make some real money.

Ai is conducting informal usability testing for a client this week. We've had a small procession of strangers come to our office for 45-minute sessions, and in exchange, we're handing out American Express gift cards.

This is the first time we've done tests on-site, and it may be our last. The testing has gone great, but we've had one person double-air-kiss our moderator and another demand twice as much compensation as we offered in our ad.

Then there's the job candidate who stopped at our front desk on her way out. Our office manager, Katie, was in deep discussion on the phone, and handed the woman a gift card, inadvertently paying her $50 for her job interview.

Imagine Katie's surprise when she got off her call and discovered the usability tester still in her session.

(The interviewee kept the card. What would you have done?)

Last Friday my iPhone's vibrate feature failed. I had a day or two of odd brrrraap buzzes, wheezy ailing things, and on Saturday, pfft! no more vibrate.

I went to Apple's Genius Bar on Sunday, fighting masses of bored tourists on Easter to get my phone inspected. The technician (genius?) took a quick look at my phone and decided that I had broken the external silence switch when I dropped it at some point. "There's your problem, right there," he said cheerily.

Before I had the chance to get defensive, he had opened a drawer and taken out a small white box. Out came a new iPhone--refurbished, I'm sure, but visually perfect--and within five minutes the genius (technician) had swapped SIM cards and activated the new phone. He took my phone--nine months old, dropped several times, with the scuff marks to prove it--and put it in the box with an explanatory label.

And that was it. "Here you go," he said, "you're all set." And I went home with a new phone in my pocket.

I tell this story not simply to add to the "cult of Mac" but to examine just why Apple has been so successful.

• Trust. The tech who met me listened to my request, quickly verified it, and moved onto solving the problem. No challenges, no curiosities, no wondering whether I had violated an arcane clause of my limited warranty. Heck, the tech even pointed out that I had dropped the phone--surely grounds for voiding my claim, and for which I had prepared an extensive explanation about timing, cause and effect, and so on. But it made no material difference to him.


• Ease. All I did to get my phone replaced was make an appointment, hand over the phone, and sign a form acknowledging my receipt of a new one. No other paperwork or, as noted above, difficult questions.


• Flow. The Genius Bar is, of course, free. I booked online, arrived late on Easter Sunday, and still got taken within minutes.


• Goodwill. The net effect of the above: I am a newly satisfied Apple customer, not only proud of my iPhone (proud! of a phone!) but delighted with my recent experience. I've spent the week telling people my story, which routinely elicits amazement and wonder: what other company is this easy to work with? This in turn continues Apple's amazing halo effect, which translates into ever stronger sales.

Cheap. Fast. Good. Pick two. That's the classic project triangle. As best as I can tell its an immutable law of the universe. No matter how much you try, you can only control 2 points at any given time. At Ai (driven by Wertheimer) we incorporate these points into a statement of priority from the clients, called a Faceted Feature Analysis. (Link will take you to the full story). Different clients are sensitive to some points on the triangle more than others, so we move the project priorities around in order to accommodate them.

This triangle is a source of confusion, however. That's because there is (or at least seems to be) more than one triangle in play. In fact there are three, making a triangle of triangles.

The second triangle is the Faceted Feature Analysis (FFA) triangle.

The mapping between the first two triangles is mind-bending, but legit. What we're saying here is:

• If Cost is the most important factor to a client, then Business Value is paramount.
• If Time is the most important factor to a client, then Technical Ease (how easy it is to build) is paramount.
• If Quality is the most important factor, then User Value (or usability) is paramount.

The FFA triangle is about prioritization. It is implied by the classic project triangle, but it serves a somewhat different purpose. This is all about trying to figure out which features are the most (or least) important.

Which leads us to this triangle - the bad news triangle. This is the one that gets pulled out when hard decisions have to be made, the one that people most want to deny. (Deny it all you want - this is like the Law of Conservation of Energy at work here...). At a certain point, something has to give - it can be that the schedule might not happen exactly on the target date, or it might be that the budget might be a bit different than originally anticipated or that the features delivered might be a bit different than originally anticipated. Maybe this should be called the Honesty Triangle.

UPDATE: Some people (who didn't bother to leave a comment) feel that the last paragraph is too negative, that it implies that projects always ride off the rails, and that drastic scope needs to be cut, or drastic schedule slippage must occur or that massive budget adjustments must be made. Sorry if you got that impression - that's not what I'm trying to say.

The point is that there MUST be a flexible point on the triangle. The triangle is viewable through various perspectives, depending on the condition of the project, which can be influenced by many, many factors. No one wants to be in the Honesty Triangle, which is the point at which you must make hard decisions. And most of the time, you don't have to be there. But, should you, for whatever reason, find yourself with a project where the schedule is slipping, then its time to look at the honesty triangle. Honesty hurts, remember.

I'm not terribly consistent with blogging or speaking to the press, but this past week I've done both. I weighed in on an article that Tom Acitelli writes in The New York Observer asking if silicon alley still exists.

On Friday, Amazon's S3 online storage service went down for awhile. Many different online services now use S3 as a way to distribute content and store media online, and everywhere S3 is used - things didn't work for awhile this morning.

Is this an unacceptable failure of an automated business process? Or should we just accept it as the normal behavior for the web? Clearly a service like 37s Basecamp can't ensure that S3 stays up, because they have no control over any of Amazon's services. But their paying customers were nonetheless compromised when Amazon's service went down.

Wikipedia defines a Service Level Agreement as an agreement between parties that defines a "level of service" in terms such as percentage of uptime, power uptime etc. It has its roots in agreements between telecom companies and their corporate customers.

As more and more mission critical business is moved over to online services that themselves may outsource functionality to other parties, the question of reliability comes up. Where is the assurance that the third party will be there when you really need them? It was these kinds of questions that led to SLAs in the first place.

SLA-backed web services could be viewed as premium - something that you pay an additional amount, in order to ensure that the vendor is investing in the infrastructure to ensure the required level of service. Vendor's could look at SLA-backed service as a potential profit center.

Earlier this week Google announced it was seeing 50 times as much activity from iPhone users as any other mobile handset.

Yes, 50X. "We thought it was a mistake and made our engineers check the logs again," Google's head of mobile is quoted as saying.

The article goes on to discuss Google's plan for expanding mobile services, but that's not the real news here. It's more about how iPhone users view and use the device, which is unlike any other cell phone.

1. The iPhone renders full web pages. No other phone does this or even comes close. It's so easy to use, and so attractive, that iPhone users (like me) don't seek alternatives, like using SMS to contact Google or buying standalone GPS devices.
2. The iPhone has wifi. A few other smart phones are getting into this, but they're still restricted to mobile-web renderings and all the scroll-wheel-and-chiclet-clicking activity that they imply.
3. The combination of the above two features turns the iPhone into a pocket-size computer. Which means that someone with an iPhone finds it easy to jump online on a whim, and use it in ways other phone (and laptop) owners do not.

I think we should coin the equivalent of the famous "Don't Fight the Fed" slogan from the finance world. The concept, as I understand it, is that the central banking powers of the Federal Reserve are so potent that it never makes sense for an individual investor to try and move the market in the opposite direction from where the Fed is pushing it. The overwhelming correct strategy is to move in the same direction as the Fed, and thereby profit.

I tend to think in the online world the saying should be "Don't Fight the Internet". Given enough time, anyone who bets against the general direction in which the Internet is moving will lose (and often lose expensively). Unless there is some sort of intervention in the form of catastrophe or massive government action (which doesn't seem terribly likely - why kill the goose that lays the golden eggs?) I don't see this changing any time soon.

The Internet favors data abundance, not scarcity. All information, including digital media, is data. Businesses that have models based on data scarcity (the music industry is the obvious one, but some people at Microsoft may fear it's going to catch them as well) are in trouble - given enough time.

The Internet places a premium on data relevance. There's a ton of data out there, but how do you find the right data for you? Companies that answer that question (through search, through social networks etc) prosper. Companies that take a one size fits all approach (newspapers) falter.

The Internet favors openness. The ability to move around from one provider to the next - anyone can send or receive an email, anyone can put up a website, anyone can sell or checkout online. Historical attempts to compete against the entire Internet (such as CompuServe, or the original MSN) have always failed. They're not open enough.

Right now there are social networks (FaceBook, MySpace, LinkedIn...well all of them really...) that all have their little walled gardens. Their own networks. They don't seem to notice that there's already a big network there - it's called the Internet.

Social networking is very rapidly maturing into another application layer for the Internet. People are going to want to maintain profiles in one place and use them anywhere. People are going to want to have friends who are based out of different social networks. Perhaps I'm on FaceBook, but I'd like to friend someone based out of MySpace. People want that to happen, and when I say people, I mean the Internet. It didn't work for CompuServe or MSN, and its not going to work for FaceBook or LinkedIn. Don't fight the Internet.

Poor Microsoft. I almost feel sorry for them. Well, I would except for the whole evil empire of the 90s. Ah, screw 'em.

I just don't get them. They have so many brilliant, talented people working there, and they just can't be an excellent company. Why are they so competition centered? Instead of going out and finding new markets, its like their standard operating plan is to sit around and identify a competitor, and then just try and knock them off of their roost. They seem to miss so many opportunities - for example:

• X-Box could have been the "digital hub", the way the iTunes / iPod / AppleTV is shaping up. They could have owned that.
• They disbanded the IE team after the end of the browser wars and left IE6 sitting around for five years, allowing Firefox to ascend to its current status. They just ceded the market they had fought for so hard, previously.
• They have more than enough engineering firepower to own the online document collaboration space, but instead they just sunk everything into the black hole that is Vista. People still struggle with good online collaboration tools.

It might be classic Christensonian disruption mechanics at work. Or maybe they're just trapped by their own culture. I just don't know. But know they're starting to get into corporate M&A hijinks. I woke up this morning to find they've offered to buy Yahoo for about $44.6 Billion.

Ok so clearly such an acquisition would be a customer grab - getting Yahoo's ad revenue and market share. But would MS be able to stop with that? I doubt it, I think we'd see Yahoo get sucked into the whole MS technology wormhole - no more FreeBSD for Yahoo servers, you need to run IE to use it, etc. Sigh.

I can't help but think about this in terms of the HP-Compaq merger a few years ago. They're moving towards where the game used to be, instead of where its going. A MS outright purchase of Facebook would have been a lot more interesting. At least then you might get a sense of where there game was going ("trading documents with your social network on XBox!!!!"). They really need to start to actually innovate, or they're going to be about as relevant as IBM in a couple of years.

I am so sick of people throwing the term "agile" around like some sort of magic pixie dust that can be sprinkled on projects, making them somehow robust, easy to build and otherwise wonderful. Like any popular idea, it has been hijacked by the same people who screwed up permission marketing, business process reengineering, and other things that started out as good ideas.

1. Ideas have boundary conditions. They're not randomly good for everything, they always have sets of conditions under which they work, and sets of conditions under which they don't work. Agile is not appropriately applied to every case.



2. People throw around ideas they don't understand. "Agile" generally refers to a group of software development methodologies, including Extreme Programming, Scrum and Crystal. These processes do things differently from each other, and just saying "Let's do this agile" doesn't mean a whole lot by itself.

What is this thing "privacy" that we seem to be in constant peril of losing?  In Europe it seems to be treated like a sacred substance, with various laws protecting it.  In America it has significantly less value, being signed away by private citizens to corporations hungry for consumer data, without a second thought.  What is it, exactly?

A while back I posted about how to survive crunch periods (How to Crunch). Tom Sullivan, a journalist writing for PM Network magazine (put out by the Project Management Institute) decided to interview me for an article he was writing on the same topic for this month's issue.

Unfortunately it looks like the crunch article isn't one of the ones that are offered as PDFs on the site, but if you or someone you know is a PMI member you should be able to grab it. If I find a way to access the article directly (or if someone wants to tell me how) I'll post a link here.

(Not sure if I love that photo....oh well)

Some time in the last 12 hours or so this went live.

OpenSocial is a common API for writing social networking apps. Its being embraced by practically every single social networking site out there, with the notable exception of FaceBook. Basically the promise of this is that an application developer can write an application against one API and then deploy it in any of the compliant social networks.

FaceBook, as the current king, has the least incentive to adopt the open standard. In fact the OpenSocial API can be seen as a check to FaceBook. Its simple to understand really, in place of "Facebook" use the word "Microsoft Windows" and in place of "OpenSocial", use "Java". The FaceBook strategy is to add value to their platform by harnessing third party developers to write to their proprietary API. OpenSocial is a counter-strategy to that, by making a universal API that is supported by all social networking sites.

The potential fallout from a successful deployment of OpenSocial is the movement of value in the supply chain away from the social network, and towards the applications. When an app can be deployed on any social network, it doesn't matter so much which network someone is on.

The natural response to this would be for various social networks to "embrace and extend" the OpenSocial API, to try and create lock-in for their own platforms. In the past Java had several legal protections in place to prevent this (not that Microsoft didn't try anyway). JavaScript, with none of the legal protections of Java, was forked mercilously, creating a difficult programming environment for JS developers that persists to this day.

Historically, Java failed at driving a wedge between Windows and application developers. It remains to be seen whether the social networking application community will standardize on FaceBook, OpenSocial, or something else.

All the tech buzz this week has been around the latest release of Apple's operating system: Mac OS X Leopard. However, in the previous release (Tiger), a new technology called Core Image was introduced, which is only now starting to bear fruit. Using Core Image, at least three low-cost image manipulation programs have sprung up, namely Pixelmator, Acorn and DrawIt.

Core Image does a lot of image manipulation heavy lifting that has previously only been associated with applications like Adobe Photoshop. Presumably if Apple wanted to compete in this space they could have released an application, but instead they chose to do something far more clever.

By taking the hard parts of graphics programming and wrapping it up into an easy-to-use library Apple is playing a death-by-a-thousand-cuts strategy against Adobe. Now any reasonably talented Mac developer can come a long and lay down some low-end disruption on Photoshop Elements. And Apple can always claim: "Hey - we're not competing against you!"

This is a platform play. Platforms (Windows, Linux, OS X, Facebook) enable application developers to do cool stuff without having to roll everything on their own. As the platform developer, the third party application developers add value to the platform, locking the end users into it. The application developers benefit, but the platform developer benefits a lot.

So I went to my friendly neighborhood Bank of America ATM this weekend to do something I've done many times before. I need to move a little bit of money from an account with another bank into a BOA account. The easiest way to do this is to just withdraw cash from the other account and deposit it into the BOA account. So the procedure is:

1. With ATM card from other bank, withdraw money from other bank via the BOA ATM.
2. Place money in deposit envelope.
3. With BOA ATM card, access BOA account and deposit cash.

In Toronto for the long weekend (blogging in the strangely futuristic indoor patio of Richtree in BCE Place) and thinking about some of the lesser known reasons for the success or failure of e-commerce:

• Sales Tax: Often its cheaper to buy online, especially from companies that have no business presence where you live. In New York its a little over 8%, but in Canada there's usually provincial and federal sales tax, potentially adding up to 15% or so.
• Bank / ATM cards with credit card insignias: Any bank card issued in the states will almost always have a Visa or Mastercard label on it, and can be used as such. Canada bank cards have no equivalent label, and always require the entry of a PIN in order to operate. This means that if Canadians want to shop online they are obligated to use credit cards (not necessarily a financially wise move) or to use a solution like PayPal (requires a level of sophistication beyond some shoppers).
• Import / Export restrictions: You know, wine is an e-commerce tragedy. A closed bottle of wine is relatively non-perishable, has a range of pricing from discount to premium, has easy differentiation across the industry, is (with care) extremely shippable, and is primed for a great online service to offer a level of variety vastly beyond what a local provider could offer. Unfortunately its absolutely screwed by the law. Cross-border shipping restrictions, prohibition-era laws preventing the ordering of out-of-state liquor, import taxes - all combine to create a completely inviable (or at least inhospitable) environment for what would otherwise be a great e-commerce product. In Ontario its a complete non-starter: only the government can sell alcohol: its more or less illegal to run a private wine enterprise.

1. Smart people with great ideas.
2. Angel investors willing to put up seed capital to fund it.
3. Venture capital funds willing to put up larger amounts of capital to allow a company to build up its business.
4. Larger underwriters willing to take the companies to IPO.

I do tend to read a lot of pseudo-inspirational business books. My criteria is that a business book has to deliver at least one good idea (that I didn't already know) in order for me to consider it a success.

Seth Godin has chosen to not over-deliver with his book, The Dip. I'm afraid to even talk about it too much, because at only 80 pages, there's really only one main idea. If I tell you what it is, is it worth reading the book?

Spoiler below!








The idea in a nutshell (and that's how its delivered) is that some things in life start easy, get hard, and then become rewarding. Other things never become rewarding. The trick is to figure out which is which, quit the non-rewarding stuff, and slog through the stuff where there's light at the end of the tunnel.

Okay. Seems reasonable.

But Godin never really gets into what I consider the heart of the matter - how do you tell the difference between the good scenario (called the "Dip") and the bad scenario (called the "Cul-de-sac"). What advice can he give for telling whether its worth continuing down the difficult path ahead? Alas, he never says. Maybe that will be a sequel.

On the upside, it does contain one of the best quotes I've heard in a long time:

"'I can't take it anymore!', he cried, mistakenly."

Why is it that things that blew us away a short time ago (last year, last week...) suddenly fade into the background for us today? Why does the thrill leave so suddenly?

The tech industry is particularly terrible in this space. How fast the shiny new (gadget, software, web site) becomes yesterday's news. Did it suddenly do whatever it does less well? Well, no, then it must have been our perceptions that shifted somehow.

The folks at the Chasm Group define features that merely meet the expectations of users as "hygiene". Basically the story goes: you don't get points for good hygiene. You do, however, get points taken away for bad hygiene. Good hygiene is just expected.

The kicker is that what was fabulous and new last year is just hygiene now.

How do features cross this line? Clayton Christensen, author of the Innovator's Dilemna, suggests that features are more compelling when isn't yet sufficiently developed to solve the business problem for which its designed. Every feature upgrade is a huge deal, because it takes the product closer to crossing the line where it can actually address the business problem.

Once it crosses that line, however, the new features become much less interesting. Think Microsoft Word. There are those who feel it was perfect about 10 years ago.

I was thinking about this when I stumbled across the Japanese idea of two kinds of quality (it comes from Total Quality Management):

1. atarimae hinshitsu: The idea that things will work as they are supposed to (e.g. a pen will write.).
2. miryokuteki hinshitsu: The idea that things should have an aesthetic quality which is different from "atarimae hinshitsu" (e.g. a pen will write in a way that is pleasing to the writer, and leave behind ink that is pleasing to the reader).

I try not to cross-blog too much but, here goes...

Seth Godin mentions shopping in the Apple Soho store, talking about the amazing composition of the audience (Women! In a computer store!). He then complains about standing in line at the registers. I just want to mention the last point.

I recently bought a copy of iWork from the 59th St. Store. While waiting in line, an Apple employee buzzed the line, asking, "anyone paying by credit card?" I volunteered, and he did the checkout using this handheld wireless device. Because I already had an Apple ID, my receipt was emailed to me. No signature was required (Starbucks is also doing this now).

No paper whatsoever. Very fast. Why don't more stores do this?

Why do some business make such smart decisions with technology, and some are so helpless? What's the difference between a business that leverages technology to grow its business, increase its profit margin and out-maneuver the competition, and one that sinks a lot of money down a useless, costly, black hole project?

I'd suggest that alongside intelligence (IQ) and emotional intelligence (EQ) that businesses also sport technology intelligence (TQ). A business' TQ governs its effective use of technology, which in turn has a substantial impact on its effectiveness as a whole.

Here's how I see the five levels of TQ in business:

1. Business Problem: The first step a company takes towards TQ is when they acquire the knowledge to address a specific business problem with technology. This could be hiring developers or an external vendor to write a custom application, or it could simply be the purchase of a system to meet a specific need.

2. Tech Strategy: The second level is where a company stops looking at individual business problems in isolation, and develops a comprehensive tech strategy. At this level, the application of technology to individual business problems is evaluated within the context of the overall strategy.

3. Tech Ecosystem: At the third level, the company is aware of its tech strategy in a larger eco-system of always changing technical trends. The company is sensitive to how the "tech landscape" will affect its internal strategy, whether through availability and cost of personnel, the continuance of particular tech platforms or the development of new ideas and paradigms.

4. Tech Vision: Once aware of the "tech landscape", a company begins to have the opportunity to make strategic decisions based on an understanding of where things are going. A company can purposefully choose where it wants to live on the adoption curve, and then monitor new developments as they work their way down the curve. At this level a company starts to be able to anticipate movement in the landscape before it happens, and can position to get ready for change, and to avoid destructive disruptions.

5. Tech Leadership: At the very highest level of TQ, the company can make change happen in the tech landscape. This very sophisticated understanding involves identifying unfulfilled needs beyond the company that intersect with the company's business, and applying technological solutions to meet them.