The Importance of Luck

For a long time now I have tried to write the best I can.  Sometimes I have good luck and write better than I can.

- Ernest Hemingway

Luck has a good deal to do with success in business.  Not superstitious luck, as found in baseball rituals, but luck as chance, accident and coincidence.

Though the objective of golf is to get the ball in each hole in as few strokes as possible, a hole-in-one yields jubilant dismay.

Experience has taught us that the farther we are away from the hole, the odds of sinking the ball get exponentially smaller.  Too many things have to go right, all at the same time.

Though some of these things are within our control, the smallest variations in body position, muscle firing, angle of the club face to the ball, geometry of the swing increase the likelihood of a missing the mark.  Distance magnifies the slightest error.

Then there are the things beyond our control.  Temperature, humidity, and air currents all seemingly conspire to thwart our best efforts.  Even if we could make instantaneous physical adjustments as we swing the club, conditions can change as the ball takes flight.

So, we bring our skill and experience together at one moment, make our best guess to adjust for conditions, go for it, and hope for the best. 

It is no different in business planning.

By the time the final version of the plan has been written and approved, its shelf life is already nearing the stale date - if not past it.  Most of the decisions that underpin the plan - things we’d like to be sure of - are unknowable.  We know what they’re likely to be over a range, but we can’t pinpoint them.

So, we bring collective managerial experience and know-how to bear.

Assumptions, representing the best, rational outlook we can assemble on future conditions and the uncontrollable forces in the market, are laid out.  “What-if” scenarios are drawn up and scrutinized.  Sensitivity analysis is performed.

When we are sufficiently satisfied that we have applied our skill, knowledge and resources as best we can, we tee up the ball and take a swing.  Our competitors likewise take their swing - it’s no easier for them, either.

Most times, the result will be “acceptable”.  Even with experience, though, sometimes we’ll hit a poor shot.  Yet, occasionally, everything come together magically, and the ball stops inches from the cup - and once in a great while may land inside it.

Sun Microsystems had the E10K server (acquired from SGI when it was unable to purchase all of the assets of Cray Computer) and Java (originally intended for TV set-top boxes).  Apple had the iPod (sorry, Sony Walkman) then parlayed that into the iPhone and now the iPad.  Likewise, Google and Facebook have turned promising products into game-changing, paradigm-shifting, runaway successes.

Each of these companies wanted - and planned for - their product to succeed.  But none of them counted on the results that were achieved.

How did they get everything right?  How do they repeat it?

As in golf, there are many things that must go right, all at the same time - more than can be reasonably managed.  But, we do get better at understanding - and hence, managing - a few of those things.

Malcolm Gladwell’s excellent book, The Tipping Point, offers numerous examples of luck lending a helping hand.  He puts a face on some of the forces that create luck, too.  So does Chris Anderson’s The Long Tail, which illustrates how the internet, social networks and viral marketing have led to unexpected good fortune for those products that don’t make the best-seller list.

Good companies become students of those factors that could swing the advantage to their side.  They experiment.  They try.  They take risk.  They find something that works.  Then they practice, practice, practice.  Until they get it right.

Luck typically favors persistence and diligence.  Those who stay in the game, pick themselves up by the bootstraps when things fail, and who keep swinging until they get it right are usually the ones whom luck favors.

 

Facebook Advertising is a Bust for Brands

I casually read a blog post by UK-based Market Sentinel that I gave a second look at a day later.  It deals with Market Sentinel’s examination of how effective Facebook advertising is for brands.  Their conclusion: it’s not.

As with any analysis, it has its pluses and minuses (more on that shortly) but what caught my eye on second read were the online metrics used.

Did you know that you can:

• track your Facebook fan base online, just like rock stars do?
• find the popularity of any Facebook application?

Read on to learn how.

But first, a look at the job Facebook does for advertisers.

The Money Still Flows to Google

My gut tells me that the folks at Market Sentinel are right: Facebook is not a mecca for brand advertisers who use Facebook like they use conventional media.  Few have cracked the code.

Earlier this month I provided stats on social media advertising (the data excludes Google) showing that 98% of companies are either already doing advertising on Facebook, or plan to do so this year.  What the data does not show, however, is how much skin advertisers have in the game, i.e. ad spend.  This chart, though based on data gathered 6 months earlier, sheds light on share of ad spend.

If projections turn out as forecast in this scenario, then Google is expected to capture almost half of online ad spend next year.  Facebook, though growing, would take share from AOL yet still lag behind Yahoo! in 3rd place.

Of course, the marvelous thing about projections, as I blogged yesterday, is that they cannot anticipate future events.  They are predictions of how the future might be, not how it will be.  One of the events this projection could not anticipate was the launch of Google +.  My betting is that Google’s ad spend share can only go up, not down, as a result.  Time will tell.

What’s Your Fan Base?

The visual centerpiece of the Market Sentinel blog is a table showing the Facebook fan base for the Top 20 celebrities.  Eminem leads the pack with 42 million fans.  All of the celebrities leave big brands and their fan pages in the dust.

Here’s the interesting metric though.  Eminem only has 575 loyal fans - as defined by those who write comments more than the average for the other 41 million.  The most active fan base of the Top 20 is that of Lady Gaga, who has 1,231 active fans out of her 39 million followers.

Why should this matter?

Because only Facebook users who actively interact with a page receive updates.  In other words, only those fans who frequently visit and interact with a company’s page automatically receive the company’s updates in their Facebook stream.

So, all those clever “Like Us” promotions don’t end up streaming company content to the thousands - or millions - of fans who signed up.  If Lady Gaga updates are only reaching 1,231 or so of her 41 million fans, you have to wonder who is receiving those promised American Express updates.  I know I’m not.

If you’d like to find out the size and loyalty of your Facebook fan base - it’s free.

Visit Skyttle Friends  

Just be sure you are signed onto your Facebook account, then the rest is easy.  Warning: prepare to be disappointed.

What Facebook Apps get Traction?

This goes to show that, online, there’s a metric for everything.  If you’re familiar with Alex website rankings, you’ll find this similar.

Appdata is an online traffic tracking service run by Palo Alto-based Inside Network.

Here’s its Top 100 Application Leaderboard.

Scroll through the listings and you’ll soon notice, as reported by Market Sentinel, that brand applications, though many, don’t garner much usage at all.  Why?  Likely because few companies have figured out what is truly of value and interest to their customers and followers.  They’d all be better off understanding, as Starbucks did, why the game applications garner large followings.

You can track both Facebook’s top applications and apps developers, and call up all sorts of interesting time graphs - just as you can with stocks.  Here’s what the headings mean:

• DAU - Daily Active Users
• MAU - Monthly Active Users (a summation of each DAU count for the month)

Takeaways

1. Companies (brands) are still figuring out how to promote themselves on social networks like Facebook.  Activity and experimentation is high, but ROI is low.  With repeated trial and error, they’ll catch on.  And when they do, ad spend will catch up.
2. Corporate brands should use Facebook as CRM (Customer Relationship Management) tool, and not as a substitute for email marketing or display advertising.

The Last Woman on Earth

Forecasting is part art, and part science.  Unfortunately, far more art than science gets applied - you’ll see a stunning example shortly.

The most dangerous of all forecasting techniques is the simplest - extrapolation.  To many planners and forecasters, taking an historical trend and extending it in straight line from past to future is like looking at a traffic accident.  No matter how grisly the scene may be, you just can’t take your eyes off it.

It matters little whether the straight line is derived from a linear regression.  The underlying assumption regarding historical events - that is, that conditions which occurred in the past to produce events will occur in the future - is a risky assumption.

Ask anyone who has been in either the stock or the housing markets the past few years.  Averages, and the comfort of narrow and orderly deviations from the mean, rarely align to produce predictable outcomes.

Population Projections

In the eighteenth century, The Reverend Thomas Malthus, a British political economist, understood the fallacy of drawing straight lines from past events.  He explained the fallacy in his 1798 work, An Essay on the Principle of Population.

In put forth his theory that, as populations grew to the point of outstripping the capacity of the environment to sustain them, that war, famine, pestilence and disease would keep populations in check.  The work considerably influenced social policy leading, in part, to the creation of the census poll.

It certainly stirred up more than a few arguments in is day - both in support, and in refute of his theory.  It’s interesting to note that, 200 years later, the arguments still persist.

In 2007 the liberal-leaning New York Times claimed that man’s inventiveness would free him from the bondage of a Malthusian catastrophe, whereas the conservative Wall Street Journal devoted a front page article supporting the view that Malthus had his mojo working for him when he published his work.  

Who’s right?  Who’s to know!  Thank goodness for politics and the miracle of elections.

A far more sensible view of the future that entirely avoids straight-line extrapolation comes courtesy of a 240-page United Nations study published in 2004, suitably titled, World Population to 2300.  It contains this graph, showing world population projections through to 2100.

The analysts who prepared the report know better than to draw a tempting continuation of the blue line representing Actual worldwide population.  Instead, their projection consists of three flavors: each is dependent on varying assumptions about the future.

The U.N. has certainly covered its bets: at the high end the population could double from its 2004 level, and worst case could decline to 1990 levels.  There’s a projection in there to suit just about every glass half-empty or half-full outlook.

Kidding aside, this is not an exercise in wiggle room.  The U.N. has rightly shown enormous variation in outcomes for one simple reason: it is impossible to predict what will happen to conditions that affect population growth with any certainty.

Will the Last Woman on Earth be a Hot-blooded Brazilian?

Which brings us to the stunning example I promised.

This week, The Economist published this article on declining fertility rates in Asia.  Whereas three decades ago China imposed strict measures to control the number of children couples had (presumably, Communist Party members support the Malthusian view) there is a different problem today.  In a period of unexpected increases in wealth and living standards across Asia, it turns out that fewer people are getting married.  Hence, there are fewer children being born.

In its blog, Daily chart, The Economist had some fun with what it admitted are “back-of-the-envelope calculations”.  It took U.N. data on fertility rates, and simply extended them in a straight line to see what would happen.  The end product is this graph projecting the end of human civilization as the last child-bearing female leaves this world.

 

Don’t for a minute think that the editors of The Economist buys into this.  They don’t.  They are simply having “what if” fun, and end the blog by stating the condition, “if present trends continued unbroken,” to assure its readers of the unlikelihood of such events.

(That said, I’m intrigued by the Canadian fertility rates relative to other countries.  Seems it is a very different country than the one I left in 1994.)

Takeaway

Most projections we see span no more than 5 - 10 years.  It’s easy to take them as gospel.  

Next time you see a forecast (projection) that piques your interest ask yourself this: what would the projection look like if it extended out 40, 50 or 100 years?

If that outcome seems absurd, then it would be prudent to examine the underlying assumptions used by the forecaster.  Especially if the forecast concerns something you would bet your retirement or career on. 

 

 

 

 

 

How We Use Facebook and Twitter

Facebook users: have you had the sense that how you use Facebook today is a lot different than you did a year or two ago?  If so, the research bears out your suspicion.

First, a little history on just how quickly Facebook reached its 750+ million users, as compiled by eMarketer:

• 90.3% yr/yr growth from 2008 to 2009
• 38.6% in 2010
• 13.4% in 2011 (forecast)

UK research firm Global Web INdex completed a study of social media usage behavior globally, publishing this rather impressive visual map of its finding.

0823.Global-Map-of-Social-Networking-GlobalWebIndex-June-20112.pdf Download this file

The map chock full of useful information, yet extracting conclusions from it takes some getting used to.

It’s easier to examine the data in the following two tables.

Changes in How People Use Facebook

The first table shows how Facebook usage has changed since 2009.  On the growth side, more people are uploading video content and - at least globally - people are joining company-sponsored (branded) Facebook pages.

There’s plenty of things for which use is declining - when was the last time you sent a digital gift, or used Facebook for messaging?  Of particular note are these three items:

• Applications: my hunch is that so many of them end up spamming friends with useless information (do you really care to know what restaurant I just walked into) that users have grown wary.  Marketers seeking to promote applications may have a tough go of it.
• Groups: aside from branded groups (many of which are very well managed) most groups languish unattended as people realize that it takes time and effort to update them meaningfully and often.
• New contacts: just how many people do you know and want to follow - or, importantly, know and want to follow you?  It does not take more than 300 - 400 to be overwhelmed with content, and reach diminishing returns.

Microblogs are Meant for Content

Here’s a different slice of data for mircoblogs like Twitter.  This table shows frequency of various ways of uses a service like Twitter.

At 144 characters, Twitter clearly limits what one can say.  Twitter’s dominant use has become referral - connecting to other sites, photos, videos, blogs, news updates and such where there are no limitations on size or nature of content.

There’s plenty of back-and-forth commentary on Twitter, but it almost always follows someone posting a link to originating content for followers to see and, in turn, comment on themselves.

Understanding the difference in intention between community sites and microblogging sites saves frustration:

•  Facebook lets users post and share content directly
• Twitter is a gateway to content posted elsewhere

 

Medicine, the iPhone, and Google

Before the opening of markets on Monday, August 15, Google announced its pending deal to acquire Motorola Mobility for $12.5 billion.

Why would Google want to buy Motorola when they risk torching a perfectly good relationship with mobile device manufacturers Samsung and HTC?

The reasons provided by Larry Page on that morning’s conference call was both obvious and plausible but, as industry observers know, was crafted for public consumption.  Google is not about to lay out its rationale in detail as doing so is tantamount to to giving its competitors a page from its strategy handbook.

To be sure, acquiring Motorola’s treasure trove of IP assets is one reason (especially in light of Google not being invited to the Nortel patent party last month).  But I strongly doubt that losing out on the Nortel bid did anything but cement what Google was already planning with Motorola.

The acquisition has much more to do with ensuring that, to paraphrase hockey great Wayne Gretzky, Google can go where the technology is going to be.  We’ve had a few hints in the past four years about just where the smart money is being placed:

1. The mobile conga line that Apple’s iPhone started in 2007 and, with it, the creation of over 425,000 mobile applications (Android has 250,000).  Gartner estimates that smartphone sales grew 74% yr/yr.
2. The follow-up tsunami created by the release of the Apple iPad in 2010, with an expected 35 million to be sold through 2011.  The same Gartner study estimates 428 million mobile devices were sold in 2Q 2011.
3. IBM’s August declaration of the 30th anniversary of the PC that the PC is dead, ceding way to the growing number of mobile + wireless devices that are dominating the market.

The final hint - the one that really strikes home for me - is this 17-minute video of Eric Topol’s presentation at TedMed 2009.  It may have seemed a little “out there” two years ago, but not today.  Topol presents more than the future of Wireless Medicine.  He provides a peek into our very near future.  A future in which mobile devices, networks, and applications meld together to create innovations as fast as we can consume them

This is why Google had to buy a mobile device manufacturer.  Watch Eric Topol’s presentation and judge for yourself.

 

e-Books Rule

The demise of Borders has everything to do with the changing dynamics of book distribution, but is no reflection on our appetite for reading books.  Based on a survey of 1,963 publishers by BookStat, estimates of book revenues were $27.9 billion in 2010 - slightly less than 2009, but a 5.6% increase over 2008.

 

Some Highlights

• 2.6 billion books sold in 2010, including 114 million e-books (but does not include sales of the growing sector of self-published works)
• Printed book sales were flat, but e-books rose from a 1% share of the market in 2008 to 6.4% in 2010.
• E-books represent 1.8% of children’s book sales which, as a category, declined 7.6% against a rising tide.
• Revenue from religious books increased a hefty 11.1% (have we turned from Ben Bernanke to a higher power to turn the economy around?)

Read the data summary here, where you will also see this impressive cubic representation of publishing categories, formats and distribution channels.

Some considerations:

• Book reading is not dead.  Far from it.
• The market for books is (arguably) elastic.  Reduced e-book prices have not hindered sales, as was feared.  The increase in sales of e-readers and tablets may well be increasing the demand for books - something there’ll be a better handle on when 2011 data is published.
• As in the recording industry, the battleground here among publishers and e-book e-tailers (Amazon, Apple, Google) is distribution.  Where the ultimate spoils will go is still undetermined.  
• E-books would not enjoy their pricing and uptake advantage were it not for on-demand distribution and archival via the cloud.   
• With storage and network speeds a factor in the distribution of on-demand music and video, is it any wonder that, for the price charged, e-book distribution is a nice business to be in?   Data storage equivalencies:
  • 1 hi-res photograph = 1 large e-book novel
  • 1 downloaded music album - 200 books (they each retail for about the same) 
  • 1 HD video rental at $5.00 = 25,000 books