3GSM was overwhelming - Any trade show that takes you more then three straight days to walk through is. From system integrators, content providers, enablers, device manufactures - the industry has indeed matured.

Out of the hustle of such a big event, there is one mega trend that I’d like to focus on - the death of the closed garden and the emergence of the smart pipe.

To understand why this is happening I think we need to quickly examine the role of the ‘Garden’ and see how it came to be in the the first place.

Many Internet years ago, when the world wide web had just started reaching mobile devices, when such devices were few, when they were expensive and of with horrible quality of service - mobile operators felt obligated to fill the default Internet home page with mobile adapted content. This, in turn, was supposed to have given users a good enough reason to surf from their mobile. The mobile content market was non existent and there was simply depth for users to find their own content. In addition, the companies providing mobile content were inexperienced and scarce. WAP was a techie buzzword, but all consumers got was a poor and slow experience, very much inferior compared to what they were getting used to on the PC.

Ego was (and still is) another factor. Yes, pure ego. Mobile operator executives believed (some still believe) that the mobile Internet should not be free as the “PC” Internet. The basic “rational” was that since they controlled the ‘gateway’ already they could and should control the content. This attempt is similar to what AOL has done very successfully for a long time - provide your subscribers with a content portal through which most of the content was consumed.

Most users have supposedly basic needs and when information is prearranged for them - they supposedly just use it, many times being unaware of the rich world beyond the fence. In the regular (PC) world it would be unheard of to have your ISP control your content but in the mobile world it became the de-facto reality.

The accumulated result drove many operators to try and develop in-house content divisions whose sole purpose was to fill the portal with content and services. Since part of the problem was the scarcity of the content, this was a necessary evolutionary step for the mobile Internet to develop. Someone had to get the snow ball rolling.

Today, I believe, the snowball has reached its critical mass ad guess what? People want more. Almost all new devices come with Internet connectivity, screen quality is good, connectivity fast/er, mobile content is abundant, mobile applications easy to install, WAP is rich, an open mobile billing ecosystem is in place, there is an understanding that the mobile web is different (more passive then active), services and sites have developed accordingly and most importantly users are getting more sophisticated. They actually know how to reach the web, save bookmarks and change default settings, all in all leading to the maturity level required to change the closed garden model as we know it.

My argument is not that the portal is dead, but that it can no longer be closed. Operators must focus on two major and parallel agendas:

1. Provide users with selected, popular, edgy content through the portal - a good example is mobile TV. Mobile TV broadcast is not mature enough to be outside the portal.

2. open the portal and work hard on partnering / enabling third party, independent, niche content/service providers serve users directly. Let users roam the mobile Internet world and reach places that are far from the portal as could be - and actually promote it. When more users will roam free, the more they will understand how to use it better and increase their data consumption, overall benefiting the mobile operators more then anyone else.
The almost incredulous statement I am making is that there is such a thing as mobile Internet. There isn’t! The mobile device is only a terminal. The Internet is the same Internet only viewed by a different lens. Its the years of indoctrination that have led most people to perceive them as two separate universes.

For several years now I have heard Mobile operator executives fearful of what they call becoming a dumb pipe. I don’t know who invented this word, but the psychological association in it has made the industry paranoid of what can be (and in my mind should be) the modus operandi for making loads of money - and its far from being dumb.

Becoming a pipe that effectively channels content while creating adequate processes for billing, content delivery and quality of service assurance (and a ton of other things) is very sophisticated, far from dumb. Dumb is thinking you rule the world. Smart is understanding your users want more choice then you (as an operator) can ever supply. Happy customers and loyal. That is the focus.

Focusing on loyalty through openness and wide selection of added value service, whether in house or external, is the right challenge ahead. Trying to win ground by holding on to something that is not yours is a battle all ready lost.

      

I am hectically preparing for 3GSM in Barcelona next week. A great venue by all standards. As a presenter, there is a mountain of collateral to prepare - the service overview, the technical white paper, the content provider offering, the mobile operator offering, the stand background, the poster, the this, the that.

So here I am trying to do what most people do before a show and then it strikes me what a waste it all is. We all know but hardly admit that most of these papers will be thrown away or at best looked at very briefly. And what do we do about it? Nothing.

This stupid (sorry, couldn’t find a better word) march of industry clones that exchange papers from one hand to the next and on to the closest waste basket. We often even deliver the paper overseas and back into our offices and then throw it or put it on some shelf to stand there as a silent testimonial “we were there” … but rarely look at it again. The one or two times we do take another look is come preparation time for the next show – then we pick it up and see what interesting ideas we can use for this year’s show – and so the paper parade continues and no-one is shouting that the king has no clothes.

It’s not that the information within is useless, it has some (limited) value. That too is usually filled with empty promises and a stack load of buzzwords. That I could take. But why for heaven’s sake do we need to kill so many trees in the process?

The same info, the same sheets should not leave their original electronic formats. They should stay on websites, PCs, USB drives, you name it – put please do not print it.

We can be very critical of our politicians for not doing enough to save the world BUT WHAT DO WE DO ABOUT IT in our closed garden? NADA.

I would like to see the first mobile / web / telecom etc. tradeshow pick up the challenge and declare – PRINTABLE MATERIALS ARE BANNED!

Simple and to the point. It will not harm the venue quality, even help it. All these carry-on bags are useless. You want to give me something – tell me where to look it up online, transfer me an electronic file. Anything but paper.

It is we that are destroying the forests in Brazil, not someone else! Its about time we put an end to this killing spree.

Gil Rosen

      

MetaCafe appointed a new CEO today. Erick Hachenburg of Electronic Arts will be replacing Co-Founder Arik Czerniak. This move is the most recent in a series of executive recruits which included new VP of Sales, VP of Marketing and Executive Chairman. A quick look at Mr. Hachenburg’s resume reveals deep experience in online media executive and business management. Perhaps more importantly, Mr. Hachenburg brings along recent and successful experience from the Asian market for which he was responsible at Electronic Arts.  

According to Allison Campa, MetaCafe’s VP of Marketing, MetaCafe had 17 million unique visitors in December, an increase from 16 million unique visitors in November. Such volume must be monetizable, period, and no one should know better how to monetize it than an ex-GM Asia from a company that generated $3B from online media last year alone. 

I argued before that YouTube has not conquered the market, simply because the market is still at it’s infancy. There’s plenty of room for MetaCafe (and others) to grow. The Asian market may prove more promising in the long run and MetaCafe have already established good presence there.

In online media market share means a little less than absolute traffic. People watch more than one TV station and read more than one newspaper. The same logic applies to the Internet as well. If video advertising takes off, so will both YouTube and MetaCafe regardless of their respective market share. If, on the other hand, video advertising will not live up to the promise then both will need to get creative.

In either case, most of the critiques would happily trade places with MetaCafe. 17 Million unique views per month means huge potential. MetaCafe have built a great end user product and have succeeded in creating that potential.  Now it’s time to shift gears and take it to the next level - securing market positions and generating a profit. Right now my impression is that MetaCafe are doing exactly what the doctor has ordered. 

      

I got a call from my accountant today. A nice guy, the accountant that is, but generally not one I enjoy getting phone calls from. Personal care taking was never my forte and I always feel way behind the curve. This call was different though. It started with the usual chit chat, then he started inquiring about the new company I have recently joined. Hmm, I thought to myself, he is trying to land us as customers! fair enough, let’s listen!

Sure enough he pitched his “new start up package (very good one, contact me for details) It’s what followed that made it interesting.

“Are you looking for an investment? ” - he went straight to the point - ”We have a new angel club that specializes in early stage start-ups and I’d like to set you up with our members!”

I admit, my accountant was the last person on earth I expected to hear that from, so I naturally went silent for a few seconds in shock. Finally I came back to senses and wondered about whatever drove him into that type of venture. After all, he always reminded me of a pacemaker, not of an entrepreneur. Turns out his customers are the classic type of angel investors and since he has developed intimacy with their finances, what could be more natural than opening new investment paths for them? And who wouldn’t want to belong with an angel club?

I told my partner about it and he wasn’t surprised. He was also approached by his attorney, dentist and plumber. Each one is leveraging their respective intimacy with a wide variety of customers in order to help increase returns and hedge risks. It really got me thinking. I have much more to say about it, but I have some forms to fill out now. My son’s kindergarten teacher is setting up “Bob the Hedger”, a promising new hedge fund, and the deadline for submission is tonight. I’ll keep you posted!

      

In a recent Podcast I heard in Marketing Voices Jennifer Jones interviews Guy Kawasaki on impact of social media on marketing. At the start of the interview Jennifer and Guy deliberate on the meaning of Social Media and without missing a beat Jennifer defined social media as “… its blogs, wikis, Pod Casts…its literally everything that is Web 3.0…its really communicating socially” . 

Huh?…wasn’t that how we defined web 2.0?. ..and why didn’t Guy stop her and ask if she made a mistake and meant 2.0. This got me thinking. Over the past year or so, after the initial hype and euphoria, everybody felt that web 2.0 was over used.

When it begun, it had almost the same sex appeal as “Je t’aime” (French for I love you)
but now after 2-3 good years of this ‘era’ being around, if you ask five industry professionals if they work in a web 2.0 company they will most likely try to disassociate themselves from this definition and try to find a more concrete one. “Web 2.0 …oh no, we are more of a Peer 2 Peer broadcast video network community” in any case the point is clear – Web 2.0 is cliché’ , its broad, its almost meaningless..

With all due respect to our contemporary Gurus and whom ever else is responsible for this, the name they chose could not have been worse. What does 2.0 means? That its after 1.0? …what was 1.0? how is 1.0 different then 2.0?

This is why its an oxymoron that people who were / are responsible for the 2.0 mistake are now trying to find a new, sexier, more advanced niche name and of all possible options are opting for Web 3.0 as the next buzz name.

Revolutions and wars should be named. Just recently we had a war in Israel and as strange as it may sound (needing a name to the war that is) NOT having one had an adverse effect on top of the natural adverse effects caused by wars - No name to put on memorial tomb stones, inability to refer to it in follow up legislative actions etc. And guess what the result was, they called it the “2nd Lebanon war - or war 2.0. The “Industrial Revolution”, The “Digitization Revolution” , The “ Communist Revolutions” etc. etc. – when you hear the name there is no debate on what the core change / focus was about. Referring to a revolution numerically (2.0) causes the existing “loose ball” confusion.

If the micro cosmos is the Internet, then its revolutions, rather then being referred to as numbers - Web 1.0, web 2.0 etc., should have been named after the core change they brought about - the public network revolution – that was the core benefit, being connected. The WWW is the name of the first revolution. From there the word witnessed the birth of HTML, hyperlinking and the birth of the first GUI browsers and online content and the de-facto accessibility to that content by the lame man. That is the Digital Content Revolution. A mass archive of billions of pages was created in a matter of a few short years and was accessible from anywhere.

However the content revolution was limited in its participation mainly to the enterprises of the technically savvy. Common people did not contribute to most of the web content. The old publishing powers who dominated offline continued to dominate online. Come the User Generated Content phase (also known, in parts, as web 2.0).

The democratization of web power, the massive shift of content generation from the established publishing powers to the individuals. In terms of the ‘history of humanity’ This is just important and the Print Revolution. This is the age where I, Gil Rosen, which represent no one but myself can write these very words and have them read by people in the US, Korea, Australia and Germany – where I know some of our readers come from (Hi ).

Parallel to this, another major shift we are witnessing is also revolutionizing business and social economics. The ability to deliver business applications over the web has decreased significantly the power of the large enterprises who controlled the OS and other core applications and the those who distributed software under mostly draconian terms.

Today, small business can access and use business application over a browser in a very effective pay per usage model with great. The “Empires” of Microsoft, Oracle etc. as we know them, no longer have hegemonic control over how our desktop look like. Small creative companies such as Zoho, 37 Signals and others can reach the masses with very little resources and no international presence.

Because the above two trends – User Generated Content and Software as a Service, have been sitting under web 2.0 - the name has been emptied of its meaning. It can be named “The User Generated Content As well AS the SaaS Revolution” but that would of course be ridiculous. Not less ridiculous is calling it Web 2.0.

Numbers mean nothing. And this is why we dislike web 2.0. because we don’t know what to associate it with.

So with all due respect to the gurus who bestowed 2.0 upon us (and I do really respect them) they made a grave mistake and I don’t see anyone saying anything when the term 3.0 is being thrown around. I would have loved to hear Guy stop the interview us soon as Jennifer mentioned the term web 3.0 and say…”hold on there” as a marketing guru at least I would expect him to say…this name is meaningless…its empty.

Twenty years from now our children will study and analyze what happened during web the 2.0, web 3.0…??!! I hope not. I studied about the Industrial Revolution, the War Of Independence, The Civil War and some others – regardless of whether they brought about wealth or carnage, at leas they had a proper name.

      

Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life by Dixit and Nalebuff is a great book. It translates philosophical ideas behind game theory to practical case studies and tools in away that everyone can relate to. I revisited the book today after seeing Chud Hurley’s announcement regarding YouTube’s intention to start sharing revenues with content contributors. The move was naturally covered by Pete Cashmore, Om Malik and Scott Karp, among others. Everybody seems to be concerned with the projected impact on YouTube’s smaller rivals - MetaCafe and Revver - who have established revenue sharing and financial reward programs with their leading contributors already.  

If MetaCafe and Revver were simply trying to differentiate themselves from YouTube then they chose a strategy that can simply never work. The market leader can (and should) play copycat to good things that can be easily copied. As a matter of fact, this is the best strategy a leader can take, one that hedges the impact differentiators and that helps maintain the lead. Microsoft has perfected this strategy to the form of classic art.

However, this is true when the only thing that matters is beating your competitors and in YouTube’s case that’s not the most important game that’s being played. First of all there is a business model to prove and a revenue stream to generate. This, by far, is more important then keeping MetaCafe and Revver on the leash. YouTube enjoys a leader’s privilege - they can observe, learn, improve, implement. They can afford to get “inspired by others” and not work so hard to surprise.

Is this a deathblow to MetaCafe and Revver? Possibly, but I don’t think so. YouTube’s rivals should not compete with YouTube using financial models anyway. It stands no chance. What they can compete with is the brand’s depth in terms of appeal to a certain segment of users. This is done using content and user landscape, not using revenue share programs. MetaCafe can definitely position itself as premium brand compared to YouTube. This will not beat YouTube out of pole position but it may secure MetaCafe’s own position and make them a strong leader of a hefty niche.

How is all that related to game theory and to Thinking Strategically? The following excerpt is worth your time:

“After the first four races in the 1983 American’s Cup final, Dennis Conner’s Liberty led 3−1 in a best-of-seven series. On the morning of the fifth race, “cases of champagne” have been delivered to Liberty’s dock. And on their spectator yacht, the wives of the crew were wearing red-white-and-blue tops
and shorts, in anticipation of having their picture taken after their husbands had prolonged the United States’ winning streak to 132 years. It was not to be.

At the start, Liberty got off to a 37-second lead when Australia II jumped the gun and had to recross the starting line. The Australian skipper,
John Bertrand, tried to catch up by sailing way over to the left of the course in the hopes of catching a wind shift. Dennis Conner chose to keep Liberty on the right-hand side of the course. Bertrand’s gamble paid off. The wind shifted five degrees in Australia II’s favor and she won the race by one minute and forty-seven seconds. Conner was criticized for his strategic failure to follow Australia II’s path. Two races later, Australia II won the series.

Yacht racing offers the chance to observe an interesting reversal of a “follow the leader” strategy. The leading yacht usually copies the strategy of the trailing boat. When the follower tacks, so does the leader. The leader imitates the follower even when the follower is clearly pursuing a poor strategy. Why? Because in yacht racing (unlike ballroom dancing) close doesn’t count: only winning matters. If you have the lead, the surest way to stay ahead is to play monkey see, monkey do.

Stock-market analysts and economic forecasters are not immune to this copycat strategy. The leading forecasters have an incentive to follow the pack and produce predictions similar to everyone else’s. This way people are unlikely to change their perception of these forecasters’ abilities. On the other hand, newcomers take the risky strategies: they tend to predict boom or doom. Usually, they are wrong and are never heard of again, but now and again they are proven correct and move to the ranks of the (rich and) famous. Industrial and technological competitions offer further evidence. In the personal-computer market, IBM is less known for its innovation than for its ability to bring standardized technology to the mass market. More new ideas have come from Apple, Sun, and other start-up companies. Risky innovations have been their best and perhaps only chance of gaining market share. This is true not just of high-technology goods. Proctor and Gamble, the IBM of nappies, followed Kimberly Clark’s innovation of resealable nappy tape, and recaptured its commanding market position. There are two ways to move second. You can imitate as soon as the other has revealed his approach (as in yacht racing) or wait longer until the success or failure of the approach is known (as in computers). The longer wait is more advantageous in business because, unlike sport, the competition is usually not winner-take-all. As a  result, market leaders will not follow the upstarts unless they also believe in the merits of their course.

Need I say more?

      

Shai Tsur of Giza Venture Capital has launched the quasi official Giza blog lately. A well written and edited blog that doesn’t shy away from controversial subjects and critical angles. In recent posts, Shai took note of 2 interesting posts written by Torsten Jacobi called Is the VC Model Broken and by Advisor Garage called To VC or not to VC. Both posts discuss the complexities VCs and Start up-ists face when they look to breed. Worth reading.

Almost every start-up-ist faces the “VC or Angel” question in the early stage. While angels and VCs are different, there is no single recipe describing who should go with who and at what stage. It is worth noting that early stage start-up-ist have a higher tendency of ending up with an angel investment. I have heard many theories regarding why that’s happening and all of them seem true. My humble contribution to the discussion is as follows:

1. Early stage is about intuition. At the early stage, it’s more about intuition than about anything. It’s not about “the management” or about “the size of the opportunity” or “the goto market plan”. It is all about the specific founder(s) and what the angel believe they can do. The company is destined to flip over backwards as it kick starts - switch models, sectors, approaches, perhaps even people. While the VC applies intuition as well it also has a deal flow system - more analysis prone and longer to execute through, therefore representing a much better fit for better established companies or for better established ideas. 

2. Primary Motivation. Start-up-ists and angels are more aligned when it comes to the motivation in the early stage. A start-up-ist does not see a $250M exit as a precondition to starting a business. The questions are much simpler - do we see an opportunity? can we build a profitable or innovative business around it? Can we identify with it? Can it all POTENITALLY become really big? The angel usually has the profile that identifies.

3. Speed. At the early stage the start-up-ist’s urge is to quit whatever she is doing and dedicate herself to the new start up as soon as possible. Turns out that angels usually have a built in, quicker decision making cycle.

That being said, I don’t think the VC model is broken or that VCs don’t fit the early stage. I do think, however, that it is very hard for a VC to compete with angels in a space such as early stage, web 2.0 investments and that it’s doubly difficult for a start-up to qualify in that environment.

VC “quick launch” programs have been formed over the last couple of years in order to create an insulated, early stage, environment within the VC. It is too early to tell whether this model works out, as most programs still involve some sort of a traditional deal flow and as Angels are more experienced in “smelling” early stage opportunities, at least for now.

      

iSee thy iphone and iThink
Will my iWallet weather in iBlink

iDream thy iPod iHave will stretch
and into an iPhone will iMiracle create

Hey Steve iHope, iDream thy truth become
iDesire thy iPhone to be my one.

iHope thy wait will be iShort
iPatience can not uphold

Oh thy iPhone what have you done
An iChild and iDiot I have become

When you look at the iPhone, whatever you think about it - one thing can’t be ignored:

THE DESIGN IS NOT JUST THE SURFACE, ITS IN THE TOTALITY OF THE PRODUCT.

Noone can escape that notion. Just like fractals, the closer you look, the more evident the design DNA is.

Take the Motorola razor, the winner of numerous design awards and undoubtedly the phone that saved Motorola. The design of the clam shell is unique, the phone’s dimensions are impressive but when you look beyond the skin its shortcomings are in abundance - Motorola have failed to expand innovative physical design to the other ‘parts’ of the phone. Motorola traditionally deliver one of the worst graphical user interfaces of any mobile phone on the market today. There is a total disconnect between the shell (literally speaking) and the inside.

The revolution that Apple brings to the mobile phone industry is its TOTALITY, and its not ‘clam’ deep.

I sometimes look at the Razor with all its awards and think that Motorola might have fluked it.

Why? because it was inconsistent with anything they did in the past, because ever since they did it, their biggest innovation has been to change its colors, because its all about the clam and not about the GUI. It’s a very good design fluke.

Is the iPhone a fluke?

All of the lame prophets (myself included) of the iPhone imagined an iPod with a keyboard. We took two existing bricks (phone and music player) and imagined how they looked after a head on clash.

Apple’s approach was different. To come up with what we see today there must have been such a revisit to the whole concept of the cell phone, that the WHY’s must have been flying left and right. Why keyboard, why right, left,center key - why, why, why. And when the pieces were put back together (with talent of course) the outcome is as great as the guts it took to do it.

Nokia, Motorola, Samsung and company had more resources and time to focus on phones and yet what we see every year is an iteration on the year before. And when they do come up with something innovative (Razor shape), its good enough for them, they’ll take care of more innovation next year/release/model. They (mostly) treat mobile phones as plastic commodities that need better screen resolution and memory for the next release. in contrast and much like the iTune-iPod symbiotic relationship, iPhone is not only about the inside and out, they planed a whole eco-system.

Apple has yet to prove the iPhone is a big seller, have yet to prove its reliability as a cell phone, have yet to prove their sustainability in the mobile industry - that is in their future. What they have proved is that design and engineering should be and are meant to be one of the same. That separating the two creates less than perfect results.

Design is not king - Design-geneering is.

      

Deadpool, fuckedcompany, bubble bubble bubble…say “natural selection, stupid”
That sums up what I have to say about all this deadpool mania. This start up is closing, the other one is cutting down, the third is cutting costs….”oh my god, the burst is imminent”.

My theory is that if everyone is raising money, hiring, launching successful ventures, making money, listing on the NASDAQ, showing double digit CAGR year after year….Then we are in La La land and the end is probably near.

However, when unsuccessful ventures close down, cut costs or simply loose to a better competitors - that is what I call natural selection. Using Wikipedia, it sounds like this:

“the process by which individual organisms [replace with: companies ] with favorable traits [replace with: features/ service / community] are more likely to survive and reproduce [replace with: spin off / grow / make money/get bought by Google ] than those with unfavorable traits [ replace with: bad execution / unlucky].

Natural selection is healthy. It makes sure that players that are there in the long run are the better ones. It makes sure that the ones that have been around make adjustments to the everchanging enviroment and not sell you the same thing over and over.

So say thank you to all those ‘deadpools’, they made the ones who are still around probably a notch better.

      

I can’t explain the EXACT reason for writing this post NOW but I’ve had it with the Beta label abuse. Beta used to have a meaning, it marked the beginning of something. It set your expectation level, gave a good young company a break. Actually, I do know…I read the completely uninteresting post in techcrunch about google’s new employee stock option plan …yada…yada…yada….what it made me realize is that “Hey….you ain’t no start up anymore…”.

I run a start up…I have a less the 20 people on board…I am scrambling for funds, when we release a version, its a beta. But google…???…sorry…GOOG, your all grown up now. Yes, you are super cool and your apps rock!…I love gmail, gtalk, calander, picasa…the lot, really BUT please do me a favour, if Gmail is beta…then my first release is preAlpha. There isn’t a letter in the Greek alphabet to describe the stage I’m at with my service if Gmail…a 2 year old (even more) or Google news are still Beta’s. Be brave Google…don’t worry, I will hold your hand…move on (and don’t give me some sh@@#$ about it being a legal reason)
Let me and the other young, new, rough entrepreneurs and our new ‘failing services’ reclaim the beta badge for real. And when we are all grown and mature I promise to move on. Honestly I will…within two years or an IPO …whichever comes first

      

Is the industry finally starting to wash off DRM?  Let’s hope so! DRM cannot EVER work for a few simple reasons:

1. It can’t really stop piracy

2. People find the linkage between track source and MP3 player annoying and unfair.

3. Apple (and Microsoft?) are abusing it to protect iPod (Zune?) sales and not to create a market for music.

The Red Herring reports that iTunes sales have peaked and are now dropping fast. the picture is not better outside iTunes, as noted by the Wall Street Journal:

“Digital track sales held steady at 137 million songs in the second and third quarters of this year, according to Nielsen SoundScan. That’s a slight drop from the 144 million sold in the first quarter”…

Eric Garland, chief executive of BigChampagne LLC, which tracks peer-to-peer traffic, says more than one billion songs are traded over those networks every month. “It took iTunes several years to reach that particular mile marker,” he notes. “The pirate market — if we considered that a market — would command better than 90% of the online marketplace.”

Nick Carr provides a thorough analysis of the decline, including the following:

“A new survey by Forrester Research provides further evidence that iTunes sales may have peaked… It found that iTunes purchases grew rapidly between April 2004 and January 2006, from 2 transactions to 17 transactions per 1,000 households. This year, however, the trend reversed, and sales actually began to slow. According to Forrester, “the number of monthly transactions declined 58%, while transaction size fell 17%, leading to a 65% overall drop in monthly iTunes revenue.”

This doesn’t stop Apple from sticking to DRM policies that prevent people from playing tracks outside their iPod or iTunes. However Apple’s motivation is not to promote music but to protect iPod sales. With MP3 players and cellphones becoming iPod comparables, Apple has been holding back the music business.

But it can’t work. As if tracks are not copied left and right with DRM. Fighting piracy should first deal with the motivation.

DRM are like government regulations. Healthy markets don’t need them, broken markets vacuum them in. Once their introduced, so is an extra motivation to bypass them. While the intention is to protect from abuse, in reality the regulator usually end up choking the market and protecting the abuser.

Perhaps the key is simply with competition stepping up. EMI/Blue Note records and Yahoo appear to be taking a little step in the right direction. The Jazz subsidiary of EMI has began experimenting with selling unprotected MP3 tracks, releasing singles from Norah Jones’ new album to the general public without digital protection. Unlike tracks sold on iTunes, these tracks can be played anywhere -computer, iPod or Cellphone - and can be copied by and distributed to friends.  

A first step en route to realization. The solution is not with DRMing the old economy but with realizing the new economy. ”New” models, such as “all you can eat” subscriptions, value add packages and advertising are simply a much better fit. 

Adds David Goldberg, Vice President and General Manager of Yahoo Music:

“For Yahoo, the deal with EMI represents another step in a long-running effort by David Goldberg, the vice president and general manager of Yahoo Music, to persuade recording companies to abandon their insistence on anti-piracy software. Mr. Goldberg publicly floated the proposal at a music industry conference in February, but initially found few takers.

His reasoning: Anti-piracy software on music isn’t helping the industry because the same music is already available without copy protection on CDs and through Internet file-sharing programs. What’s more, many consumers don’t like the limitations that copy protection imposes on how and on which devices they can listen to their music. If DRM benefits anyone, Mr. Goldberg argued, it’s technology companies like Apple, because it makes it trickier for consumers that have made hefty purchases of digital music through iTunes to switch to non-Apple music devices in the future.

“It just isn’t working,” he said. “It’s not solving piracy. It’s not helping consumers: They view it as a tax.”

And Nick Carr notes how the whole market has been choked:

“The Forrester study provides other clues that, while iTunes may help promote iPod sales, it’s been no panacea for music companies or musicians. Rather than being a central source of new music for consumers, iTunes’s business is dominated by occasional impulse purchases”

Need I say more?

      

For me, as a marketer, the words “Chaotic” and “Marketing” must not be juxtaposed. I like to quote Drew Neisser of Renegade Marketing’s mantra, which is “know thy target audience”. Therefore, the logical conclusion is that spreading your message in a chaotic manner can not be good marketing practice.

However, an article I read today in the NY Times, “Hottest Ad Space in Times Square May Be on Tourists’ Cameras“, suggests the opposite - that we are at the dawn of a Chaotic Marketing era. Let me quickly recap the essence of the article:

The sequence goes like this:1. Times square has become hot property for event marketing (A.K.A - offline marketing)

2. The zillions of tourists that roam Times Square take pictures and videos

3. Vids, pics and ‘experiences’ get blogged, posted on the “Flickrs” and “YouTubes” Etc.

4. Off line Ad/Event exposure is magnified exponentially to the online audience.

As a general “awareness trick”, this sounds like a brilliant way to get the biggest “bang for your buck” for your advertising dollars. You can also acquire “cool” status for doing unconventional stuff…but is it?? Would an advertiser dare insert a TV ad without selecting the placement? Would an advertiser let a random computer program decide that a beer commercial is to be aired in the morning, in between “Days of our Life” and “Seaseme Street”?? Or in short, can marketing be Chaotic and still be successful?. Why do brands accept chaotic placement when it comes to the Internet when this rule does not apply to other mediums? Are the basic physics of marketing being bent by the new reality of social media?

I don’t believe there is a clear answer yet. We are witnessing many marketing experiments with unclear results. So what if a 14 year old person in the UK saw a clip on YouTube of the MasterCard event - is it relevant?. Will the brand be planted in his subconscious only to come of age later? Was this the audience the marketers were expecting? The audience they pitched for during budget time? Does anybody know the identity of the the online video audience in the first place? The answer is NO - NO and NO.

So why do it…is it really that pointless? The answer is NO!

What we are witnessing is the evolution of social media. The brave few ‘freaks of nature’ that defy conventional marketing and do these “senseless act of marketing” are the ones that are helping shape our future. No less. By spending a few random dollars they are participating in the biggest human social experiment called ’social media’, where the audience is not measured by a ‘people meter’, Nielsen or any other skewed system and where the media belong to the individual. After all, how can you explain the fact they are encouraging people to take pictures of their brand despite the risk of having them posted who knows where?

They are not risking but joining. The social media revolution is happening with or without brands. These brave experiments are just attempts to join the ride. In the long run - these will not be the rules… remember…evolution…this is just a phase. Future marketers in the same space, doing similar things will know much better about the effect of their campaigns. They will know exactly who did what, when and how. A whole eco-system of technology comps and services will catch up and be ready to service them.

A case in point is a very interesting start-up called Collactive that is spear-heading the space of social media marketing. If you are a marketer you should check them out. Like them, many other companies will follow and with the help of technology order will be restored to the marketing space.

‘Cause if you ain’t superman, you ain’t breaking no laws of physics!

      

Israel based Clarizen announced having raised $7M from Benchmark Capital and Carmel Ventures yesterday. This announcement is significant in more than one way.

Clarizen provides web 2.0, software as a service, hosted project management tools. This is a brave attempt to dive head first into a very crowded pool. Microsoft on one side, Google as a potential competitor on the other and wide variety of very good Internet start-ups in the middle. Zoho and 37Signals, for example, have been providing comprehensive productivity suites, including project management, for some time now. Moreover, Zoho and 37Signals have already built good products, customers, corporate identities, press and blogsphere relations - or in short - a brand. I covered Zoho a couple of times and have been following their progress closely, they seem to be only accelerating. How can Clarizen effectively penetrate this market in a way that will eventually generate market leadership?

They can. While this market is seemingly crowded it has not nearly shaped yet. Most of the current users are very early, blog reading, techie adapters. Enterprise customer acquisition is still based on random opportunity chasing and on Grass roots marketing. Enterprise customers do not use web 2.0 productivity tools yet. There are no real distribution chains and other elements which make up a mature enterprise software marketplace. Zoho and 37Signals have been successful, but they haven’t really tickled Microsoft or real Enterprise customers yet. Then there are verticals - health-care, financial, legal, travel, banking, etc. - all requiring special customization and regulatory attention. This market has not only not matured, it has not really begun.

So what can make Clarizen different?

First of all Clarizen is not a bootstrapped web 2.0 company. The founders come with extensive and deep enterprise background. It already employes 34 employees and top notch developers. With this type of investment and backing they can aim at bigger targets. I don’t see Zoho developing a health-care suite and I don’t see 37Signals dropping everything in order to train a 5,000 employee construction company.

Clarizen is Israeli and that can be both an advantage and a disadvantage. I really hope they won’t use the money to open a North American branch and compete for the American Dream in 2007. While VCs may have a tendency to push in that direction, it will be a big mistake for a number of strategic reasons. The US is where competition is dominant, where the enterprise software market is extremely developed and where Israeli companies need to learn too much before they are able to compete. The simple truth is that American IT managers appreciate receiving service from Americans. This means local marketing, sales, support and training organization. Creating all those and going through the mandatory learning cycle will take a lot of time and money. Too much time and money. And it won’t create a real competitive position for Clarizen.

My advise to Clarizen? Climb the mountain slowly is your best shot at leading. The Enterprise SaaS market is not going anywhere too fast. If anything, you’re early. Grow the customer base, test different opportunities in different countries, make the service really reliable, grow your expertise, implement a real internal enterprise culture and only then focus on geography and a specific customer segment. Don’t jump overboard but build something real.

Kudos to Benchmark and Carmel for investing in Israeli Enterprise SaaS. Not the typical common sense investment. Israel is not reputable for dominating with enterprise software or services. Something about the innovative but messy Israeli mindset that collided with enterprise philosophy. But the Israeli scene has matured greatly and it is visible inside Israeli companies as well as with their products. There is no reason why Clarizen should not outperform it’s rivals anywhere in the world. Good luck!

      

Huge week for mobile IM. Israel based Followap, provider of Vodafone, was sold to Neustar for $140M. Montreal based OZ, Followap’s rival and provider of Cingular and T-Mobile, has racked an impressive $34M en route to massive expansion. Comverse is also a player of course, being the provider of Verizon Wireless’ mobile IM, but Comverse has other issues to deal with right now.

On the other side of the equation, Yahoo and Nokia have announced a partnership for the purpose of embedding Yahoo IM & Email into Nokia’s mass market series 40 platform. This will make Yahoo! email and mobile IM available for pretty much every GSM operator in the world. Big news. Too bad Yahoo is a distant 3rd when it comes to IM, but none the less it’s a significant move.

Quite hectic? yes. Chaotic mess? not exactly. What we do have is another stage of a titanic positioning war going on about business that has not yet matured.

Operators have their own vision of mobile IM, one that is very different then the one large internet players have in mind and that’s the sorcerer’s stone. Mobile operators, like Vodafone, would like to see their mobile subscribers receive all their communication services from the operators. For that to happen, some fundamental assets must come alive within the operator’s network. The subscriber’s mobile address book is such a key asset. SMS is already the mobile IM killer app, but the address book is still static, meaning that presence information is not incorporated. If Vodafone could add that, then your mobile address book would become a defacto IM launchpad. Moreover, operators are better positioned to provide mapping and other location based services that can eventually generate high premiums on top of the presence infrastructure. If operators had their way, there would be no need to use MSN Messenger on a mobile phone. Ever.

On the other side the IM players like MSN and AOL have a huge advantage and that is the people’s support. Users already associate themselves with the IM networks and they are not going to switch identities anytime soon. If you asked users for what THEY want, they would tell you that they want the exact same Internet experience on their mobile phone. I have an MSN account already and I use a mobile phone from Orange - does anyone really see me voluntarily becoming aner@orange instead of aner@msn? This is why operators end up going down the presence route. It is a much better strategy then head banging.

So who’s winning the mobile IM battle? Is there real business behind all the smoke?

So far the market has been split geographically. Internet centric North America has been heavily leaning towards the Internet IM players which have easily won the first round. You can find MSN, AOL and Yahoo clients on every US operator today, most of them enabled by OZ. Mobile centric Europe is more complicated, thorough and slow. Vodafone tried to launch it’s own mobile IM community, failed miserably, and sent the rest of the European operators to a 5 year halt. However, the recent maturity of IMS as well as progress with interoperability (a strategic GSMA effort which Followap, being the global provider for vodafone, wisely jumped on top of) has put operators back in the race again. If operators can really pull presence off the shelf, make it work and most importantly make it interoperable, they may have a shot at keeping MSN and Yahoo out of their space.

The sad truth is that both sides could have had this battle long won by now if not for strategic mistakes. The Internet IM players original sin was lack of interoperability. Operators cannot go through deployment cycles of 3 different IM products and that’s what AOL, MSN and Yahoo stupidly tried to put them through. Their second mistake was their reluctance to partner with mobile enablers. MSN, AOL and Yahoo thought they had mobile all figured out. Of course they didn’t. By the time they realized they don’t have a clue 3 years and half of the enablers where gone.  Operators on the other hand simply could not make a decision on going for an application. They issued RFP after RFP, stumbling upon business models, billing models, client vs. no client, presence vs. non-presence all and all ending up without a single successful deployment.

So is there business involved? I personally see both applications - live address book and mobile IM - will co-exist side by side, with a clear edge towards the existing Internet IM networks. I don’t really see mobile IM becoming a killer app. SMS does the job very well and presence has too much of a load with privacy and reliability issues. There are two main reason I see an edge for MSN, AOL and Yahoo. One is the fact existing IM addicts are already on their networks. The other, more important one, is the fact they provide a comprehensive list of services including email, search, commerce and entertainment. This creates new business and is not an improvement of an existing business. That’s also why the Nokia deal is valuable - it pushes Internet as an off the shelf product to mobile devices and makes operators decision cycles shorter and more focused, and that by itself is very good news.  

As for the long term vision for Presence… I don’t know. it’s like world peace. Makes a lot of sense but for some reason is very hard to get accompished.

      

No.

Or more precisely: Definite “No!” if you’re a web start up. Simple ”No!” if you’re YouTube or Skype. Selectively if you’re Verizon Wireless. Yes if you’re Nokia.

For web start ups it’s a dead end, and not one I see opening anytime soon. 

The industry has been debating the mobile clients forever. Java for Mobile (J2ME) was supposed to make it easy ages ago - portable across devices, universal, safe. Ya right.

So did downloading servers, OTA (over the air delivery) standards, new APIS, self installers… We are almost 10 years and gazillions of dollars later and progress has been marginal at best. People download ringtones and sometimes games, they don’t download true mobile applications.

There are two major huge problems that prevent 3rd party mobile clients from reaching mass market users. The first and major problem is behavioral. People just don’t download software to their mobile phone. They may download stuff that doesn’t look like software, but not software in the true sense. What is it that makes people download ringtones, sometimes games, but not mobile Skype or Google Maps or MSN IM? Good question.

My experience shows that people see IM, Skype and Maps as features, and that they still expect communication features to come “with the phone”.  In most cases they can’t really tell whether the feature was provided by the carrier or by the phone manufacturer. They certainly don’t care. Then there is the scary factor. Downloading a mobile application is an action performed in uncharted territory for most people. It involves hacking the phone, installing something in a very unfamiliar environment, going through all sorts of warning messages, messing up with the most important accessory they have and risking a lot of rollback time. Nah-uh!

Oliver Starr from Mobile Crunch has summarized it beautifully:

“I had the opportunity to look at a substantial number of companies planning on operating in the mobile space… In short I’ve spent an awful lot of time directly engaged in the mobile sector and most of that time focused on mobile applications.

I can tell you honestly that I would never simply come out and bash a company based upon a show of hands – even one from a technology conference like Under the Radar. However, what you don’t know is that I have been posing the same question; “By a show of hands, how many people here have downloaded something to their mobile handset that was neither a ring tone nor a wall paper?” Every time I’ve spoken at an event for the last two years. That is to say that I’ve asked thousands of people this same question across dozens of events over a period of years.

In any case, across all the conferences I’ve spoken at and all the audiences I’ve queried the MOST I’ve ever had answer in the affirmative was at the Under the Radar Conference recently and even then the total was under five percent of the attendees.”

I personally trust first hand show of hands very much. It is definitely an indication.

The other major problem is technical. Deploying a mobile client across a wide variety of mobile phones is one via Dolorosa. It’s usually hard to get it working properly on one. But then there are hundreds of different devices out there. This makes it not easy even for players of the magnitude of Skype, YouTube and Google. Even they don’t just do it. Om Malik picked up a WSJ piece on Skype’s Chief Executive Officer Niklas Zennstrom dealing with this very issue. When they discuss the mobile future of Skype, Niklas admits that it’s simply too damn difficult:

“When we begun developing the mobile phone version we didn’t realize the number of technical obstacles. It is challenging and is taking much longer than expected,”

Om then goes on and lists the technical problems Skype face which are very generic. In a nutshell, most Mobile applications require CPU that halts the phone, consume bandwidth that is still too scarce and if that’s not enough they go on and kill the batteries. Again, I couldn’t agree more.

Some players are capable of deploying mobile clients. Verizon, for example, is deploying millions of clients using it’s GetItNow platform. This doesn’t mean web service providers should do this at home. The key is a captive user base and a narrow range of problems, a combination only few Tier 1 carriers can claim. Verizon’s user base is one asset even Google is jealous of - captive access to 50 million paying subscribers. Verizon then narrowed the domain by selecting a single application platform (BREW) that is mature enough to be a true ecosystem. Finally, they built a marketing program that actually works.

Moreover. With a huge user base, porting investments per device make sense. Still, even Verizon preloads strategic applications to the phone before the point of sale, because as friendly and as robust the catalog can be, most people still find downloading an application too challenging.

How many players do you know who can pull that off? Not many. So what do you do as a start up?

You stand the best chance if your service does not require any installation or manipulation of the mobile device. If your value can be delivered via SMS, WAP, Streaming or any other mechanism the phone is naturally provisioned to do, you’re far better off. If a client is an absolute must then you should (again agreeing with Oliver Pratt) give it for free and get it on a carrier’s deck. YouTube is going to find out they can’t go anywhere without Verizon. MSN and AOL found that out long ago. Skype already outsources the problem to niche providers such as iSkoot and EQO - players that are focused on mobile enablement and that only. To them it makes sense and the giants, assuming they are smart enough and with reasonable egos, will leave it to them.

Most web services, however, will either stay on the mobile web or die trying to distribute a mobile client.