eReaders and the Danger of Price Wars

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A longer version of this story is published at www.opensources.com

Last week, Barnes & Noble announced they would cut the price on their wireless Nook eReader, from $259 to $199 ($149 for a new WiFi-only edition.)  Many thought this was a good opportunity for the third place contender to gain market share.  But within a few hours Amazon beat Barnes & Noble's price by $10, marking down the Kindle 2 to a mere $189.

As the New York Times notes:

The price cuts were made as manufacturers of e-readers faced a mounting threat from Apple’s iPad. Even though it is far more expensive than the e-readers, the iPad, which starts at $500, performs a range of functions with a versatile, colorful display that contrasts sharply with the static, monochrome screen of e-book readers. Apple said it sold more than two million iPads in the two months since the tablet’s introduction... Analysts had expected the prices of e-readers would gradually fall because of the natural decline in component costs and the increased profitability of e-books themselves.

The price cuts should add further momentum to what, despite incursions by the iPad, has been a growing market for dedicated e-reading devices. Amazon and its rivals are on pace to sell 6.6 million e-reading devices this year, up from 3.1 million in 2009, according to Forrester.

If Amazon, Barnes & Noble, Sony et al manage to sell 6 million eReaders this year, that would be impressive growth for a category that has been lackluster to date.  Amazon has never broken out sales of it's Kindle line, but by all appearances it's the leading standalone eReader and likely has sold a couple of million units in its three year history.

In comparison, Apple has sold more than 3 million iPads in its first 80 days. And they're expanding into 9 more countries next month.  Analysts are predicting that the iPad could sell between 5 and 10 million units this year, which blows Amazon's Kindle out of the water.  And unlike Amazon, Apple actually makes money with it's iPad since it's costs are around $260 for the $499 entry level product and margins improve on the higher end units.  

But its worth considering a few questions:

  • Will price cuts making any difference competing against the iPad?
  • Or does it just increase the burn of a money-losing business?
  • Why is Apple's iPad business profitable and Amazon's Kindle isn't?
  • If you could chose to be in either business, which would you choose?
  • And what does all this have to do with open source?

The key point here is that price is just one part of a disruptive strategy.  No doubt, part of the success of MySQL, Red Hat, jBoss, Alfresco, Zimbra, Pentaho, Revolution Analytics et al, comes from delivering 90% of the benefit for 10% of the price of incumbents. The trick is do to do in a manner that is profitable but that incumbents cannot respond to because of their higher cost of operations.  (And remember, most open source users don't pay anything!)  

Read a longer version of this story at www.opensources.com


Disrupting IT with Open Source & Cloud

A couple of weeks ago I gave a presentation at the Apache Lucene Eurocon in Prague. It was a good conference focused on Lucene/Solr open source search technology and sponsored by Lucid Imagination.  

I've posted the bulk of the presentation below.  (I omitted a couple of slides that were MySQL specific.) Even though it was a technical conference, I got positive feedback from the attendees and organizers that the information was useful in helping folks think about where to focus their efforts.  

The slides have been posted to Box.net and are shown using their new "embedded preview" feature which is pretty cool. You can also use the short URL www.tinyurl.com/box-disr to view or download the slides in Powerpoint format.

Thanks to the folks at Lucid Imagination as well as those who gave input and feedback on the presentation.


How to Brainstorm New Ideas

I promised in last week's post on "How to Kill Good Ideas" to follow up with some ways that more constructively help create new ideas.  The first of these is taken from an idea by Mats Kindahl's post of two other ways to kill ideas. Without further delay, here they are...

  1. Make it safe to contribute ideas
    The best way to do this is encourage risk taking and acknowledge that some ideas will fail and that's acceptable.  The people I know who are the most creative are also the most prolific when it comes to idea generation.  And some of those ideas are, objectively speaking, total crap.  But there are so many good ideas generated in the process, it really doesn't matter.
  2. Go for quantity
    One of the basic tenets of brainstorming is that you need to generate a lot of ideas.  In order to encourage that, you have to refrain from evaluating ideas during the initial phase.  You simply write every idea down, no matter what you think of it, and then try to generate more ideas. You can always winnow down the ideas later on to chose the best ones to work on. But judging raw ideas as they are suggested is the surest way to kill a brainstorming session. 
  3. Make it a team sport
    Often in meetings there's a tendency to have one person present and others passively watching or worse, critiquing.  That's not a good way to generate ideas.  Instead, it's better to break up into smaller groups and give them a short period of time (20-30 minutes) and ask them to generate ideas.  Then you need to make sure that everyone is contributing.  It's a participation sport folks!  You're not there to be a spectator.  Not only will you generate more and better ideas, people will actually enjoy the meeting and feel that they contributed something.
  4. Cross-Pollinate
    Sometimes if all of the people working on a problem are from the same background you'll run out of ideas.  Call in someone with a different perspective.  When we've done successful brainstorming sessions at offsite meetings, the best ideas come when you mix up groups across disciplines and force people to explore ideas and problems outside of their area of expertise.  Invite the salespeople into a product brainstorming session.  Heck, invite the finance team.  You might get ideas that you'd never get from engineers.
  5. Get down from the mountain
    If you find yourself short of creative ideas maybe you're too isolated.  Get out of the ivory tower, the executive suite, or from behind your computer screen and get out into the real world.  I have found going out to see customers and just asking about their problems is a tremendously useful way to generate ideas.  Conferences are also good; you can see what other people are doing and consider how to apply other ideas to the problems you have.
  6. Consider it as an experiment
    Sometimes when the stakes are very high, it's easy to end up paralyzed.  In those cases, it can be helpful to approach potential solutions as experiments.  You test them out for a period of time and then you'll know whether it works or doesn't.  In most cases you can "undo" the experiment if it doesn't work out. But be sure to know what you'll measure to know if the experiment is a success. It might be product downloads or new customers acquired, but make sure you have some basis for knowing whether the experiment succeeded or not.  And sometimes even if it fails, you'll have learned something you can do differently. 
  7. Take a break
    This is counter-intuitive, but it's sometimes the best way to break through on a tough problem. If you're too entrenched in a problem its sometimes hard to be objective or open to a radical approach.  In those cases, it makes sense to take a break and engage in some other activity.  For me, the best way to come up with ideas is to go out for a run by myself and just see what ideas come to me.  For other people it might be a walk around the office building, a hike, a bike ride or a leisurely drive.  Anything that gets you out of the mode of intense concentration into a more receptive way of thinking will work.
  8. Be optimistic
    Sometimes the only difference between achieving success or failure on a problem is the belief that there is a solution and the willingness to continue to make the effort to strive towards it.  And every failure along the way is just a stepping stone.  Personally, I think it is better to be an optimist in life than a pessimist or even worse, a cynic. Besides, who wants to hang out with a pessimist? 

As before, I've stopped this "Top 10" listing short to encourage others to share their observations on how to come up with creative ideas. 


How To Kill Good Ideas

This past week I was in a couple of different strategic planning meetings.  Some sessions were noticeably more effective than others in encouraging creative ideas.  I started to wonder why that is and came up with the top ways to kill new ideas. If you see these tenets taking hold in your organization, then you need to change things up to get people thinking more radically. 

  1. Every idea must be perfect
    The enemy of good is perfect.  If you aim for perfection you'll probably never get out of the starting gate.  By making something good (or even "good enough"), you can get it to market and improve it.  As Philippe Kahn used to say at Borland in the 1980's "Shipping is a feature."  In other words, until you get to market, you haven't done anything.  Good ideas that get implemented can be improved.  Great ideas that never get out don't amount to anything.  No idea is ever perfect, but taking risk is better than doing nothing.  If you're not making some mistakes, you're probably not taking enough risk. Better to create a culture that encourages risk taking and rewards new ideas than to become so afraid that you never try anything.
       
  2. Manage by concensus
    If you've got radical ideas it's pretty much guaranteed that you won't get concensus.  Heck, if it doesn't get someone's dander up, it probably isn't radical enough.  If you try to get everyone to agree, you'll probably compromise so much that the value of the idea is lost.  Forget concensus.  Be brave and be prepared that there will be detractors.  There will be people who object to new ideas for lots of reasons.  Maybe it threatens their power structure, or they are jealous that they didn't think of it.  People can get very complacent with the status quo and change makes people nervous. But don't try to manage towards concensus or you'll find inertia holds you back.
     
  3. We've done it before and it didn't work
    While it's good to learn from the past, it's easy to become a prisoner of it.  Whenever someone complains that something has been tried before, try to think if there's something different today.  Maybe there can be a variation of an old idea, or perhaps a different execution plan. Or perhaps the market has changed.  But instead of criticizing an idea as being old, figure out a way to strengthen the idea. 
     
  4. No one has been successful doing it before
    This is the opposite of item 3 above.  If no one has done it, it doesn't mean that it won't work.  Maybe no one has been bold enough.  Or maybe no one thought of it yet.  If you want to get out on the bleeding edge, then you need to try things out before it's common knowledge.  How many people do you think told the founders of SugarCRM that no one has been successful with open source applications?  The truly successful companies, like Google, Yahoo, Microsoft, IBM, Apple, Intel have all broken new ground many times.  It's when they stop breaking new ground that you need to be concerned. 
     
  5. We do that already
    This is a great way to put people down and maintain the status quo.  Just maintain that we're already doing something like the suggestion.  If you find yourself putting down ideas as already being done see what you can do to add to the idea and make it better.
     
  6. The problem with that is...
    Some people like to play devil's advocate's so often that they should have horns and a pitchfork. They think that shooting down an idea is as good as coming up with one.  But it's not.  The role of devil's advocate can be valuable on occasion, when you are trying to evaluate competing good ideas, but it's a sure sign of a problem if too many people think their role is to be the gatekeeper to sainthood.  But don't mistake ruling out bad ideas as being as valuable as implementing new ideas.  There isn't a single great idea or great business that does not have problems.  But if you see your role as being the person who needs to point out problems, you will find that fewer and fewer people are willing to listen.  Life is too short to spend hanging out with the naysayers. 
     
  7. No one will like it
    Naysayers often seem to have perfect knowledge of what people like or don't like.  And they often use phrases like "everyone knows that..." or "no one will like it."  But I wonder, how can anyone know what everyone thinks?  Why not test it out?  Maybe it's true that many people will dislike something.  But perhaps some will absolutely love it and you can make those people happy.
     
  8. It will kill the company
    A great way to prevent the free-flow of ideas necessary for brainstorming is to polarize discussions.  I've often seen managers claim that their team will quit if a certain idea is pursued.  Talk about a conversation killer!  When you raise the stakes this high, naturally people become afraid of making any suggestions and you're left with the status quo. 

Since I only came up with 8 ideas for what should be a "Top 10" posting, perhaps others can add their own thoughts and ideas here.  I will create another posting later in the week on ways to brainstorm successfully.


Benioff: Behind The Cloud

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I just got around to reading Salesforce.com CEO Marc Benioff's book "Behind the Cloud." Ian Howells over at Alfresco recommended it to me.  Benioff tells the story of how he started salesforce.com in 1999 and over the course of ten years, turned it into a billion dollar power house.  Although we take for granted the idea that Software as a Service (SaaS) and cloud-based applications make sense, just a few years back this was radical stuff.  

Of all the CRM implementations I've been involved in during my career, the only ones that were really successful were those that used Salesforce.com. The old model of spending a million dollars and taking a year or more to customize never had a good payoff and salespeople hated using them.  But with the SaaS model, you can be up and running in days.  And its easy enough to use most sales people will take to it with a minimum of fuss.

Benioff's model for making salesforce.com was completely disruptive of the traditional enterprise software approach: It was a proven market, with the incumbents were only catering to the needs of large customers.  So there was an even larger market whose needs weren't being met and could never afford a traditional enterprise solution with all its complexity.  And better yet, the traditional competitors couldn't afford to sell at Benioff's lower subscription prices.

Just five years after he launched salesforce.com, his largest independent competitor, Siebel Systems, was acquired by Oracle, putting Salesforce.com in an even stronger position.  And the rest, as they say, is history.

The book is divided into chapters covering elements of marketing, sales, technology, finance and so on, each with a dozen or so "playbooks" describing a technique salesforce.com used.  Some are short and obvious, but the lengthier entries, where Benioff describes what worked and what didn't at Salesforce, are excellent.  That said, the book's style leaves it in a bit of a no-man's land.  It's not quite the usual biography or behind-the-scenes business book, but neither is it a standalone management tome.

Still, there are good lessons here for any CEO or executive.  And if you're interested in Software-as-a-Service, then this book is essential reading; it's practically a blueprint.


Investing in Disruption

Innovator_solution
 
 I'm an advisor, investor and board member to several startup software companies including Revolution Computing, Pentaho and most recently Erply a new Software as a Service (SaaS) company.  One of the common threads I look for is the opportunity to disrupt a large market.

One of the things that made MySQL successful was its use of open source technology to disrupt the multi-billion dollar database market.  In Silicon Valley, people often talk about disruption, but usually what they mean is they have some new feature or a new way to do things that is 10x faster or 10x cheaper.  Those are good things, but that's not necessarily sufficient to make a business truly disruptive.  

The classic disruption model as defined by Clayton Christensen comes down to 4 important factors:

  1. There's a proven market with large incumbents
    This demonstrates that customers are willing to pay money to solve this problem

  2. There are underserved customers whose needs are not being met by the incumbents
    They may be receptive to a "good enough" product that is easy to access

  3. The incumbents cannot profitably meet the needs of this market
    Ideally, their entry into this market would hurt their core business 

  4. To disrupt market, you need to disrupt all the players, not just some of them
    If there are other players, you need to disrupt all of them

If you have all of those things, then your business could be disruptive.  But typically many startup companies ignore the third point.  It's not enough to do something the incumbents don't do today, you want to do something that they cannot do, because it would hurt their existing business.

In the case of MySQL, the product targeted the underserved web developer market.  MySQL was not only a better fit technically in that area, but due to its open source model, it was a business that was unattractive to the incumbents. (Or it was, until it grew to beyond $100 million in revenue.  Now Oracle will leverage this force to compete against Microsoft SQL Server.)  

There are plenty of great businesses out there that are not disruptive; perhaps you're creating a new market, or you're introducing a new innovation that the incumbents have not discovered.  Disruption isn't the only strategy, but if you can make your business disruptive, you gain a significant advantage in the market place.


O'Reilly Where 2.0 Conference in San Jose

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Location based applications and services was all the rage at the South By Southwest interactive conference earlier this month.  Now O'Reilly brings their Where 2.0 conference to the bay area this week from March 30 - April 1.

There will be keynotes by location dudes from Microsoft, FourSquare, TechCrunch, FaceBook, Google, Yelp and, of course, Tim O'Reilly among others. Technical workshops are held on tuesday and the exhibit hall is open wednesday and thursday from mid mornign to late afternoon.  

Where?  San Jose convention center. 


European Startup Situation

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I attended a panel session at the South by Southwest Interactive conference recently on the topic of high-tech startups in Europe.  The panel included Marten Mickos (former CEO of MySQL, now at Eucalyptus), Resham Sohoni (CEO of Seedcamp), Peter Robinett (Bubble Foundry) and Felix Petersen (Nokia).  It was interesting to learn about some of the initiatives, like Seedcamp, which are investing in and promoting startup companies like Erply, and Codility coming out of eastern europe. These companies are small, but they have big ambition and are leveraging open source and cloud infrastructures to keep their costs low.

Here's some video from the panel...


Management Secrets of the Grateful Dead

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I'm not the biggest deadhead around --I've seen way fewer dead shows than top-ranked VCs I know. But I've always admired the way the Grateful Dead cultivated their fan base.  While they really only had one hit record over a career of more than 30 years, they had a cult-like following thanks to their constant touring and a novel approach to live concert recordings.

The Atlantic has recently published an article called "Management Secrets of the Grateful Dead" which covers some of the main points of how the dead grew their audience.  In a model that was prescient to open source software and internet startups, they did so by giving away their core product.  The dead were one of the first bands to not only allow, but to encourage, fans to tape concerts and give away recordings:

Much of the talk about “Internet business models” presupposes that they are blindingly new and different. But the connection between the Internet and the Dead’s business model was made 15 years ago by the band’s lyricist, John Perry Barlow, who became an Internet guru. Writing in Wired in 1994, Barlow posited that in the information economy, “the best way to raise demand for your product is to give it away.” As Barlow explained to me: “What people today are beginning to realize is what became obvious to us back then—the important correlation is the one between familiarity and value, not scarcity and value. Adam Smith taught that the scarcer you make something, the more valuable it becomes. In the physical world, that works beautifully. But we couldn’t regulate [taping at] our shows, and you can’t online. The Internet doesn’t behave that way. But here’s the thing: if I give my song away to 20 people, and they give it to 20 people, pretty soon everybody knows me, and my value as a creator is dramatically enhanced. That was the value proposition with the Dead.” The Dead thrived for decades, in good times and bad. In a recession, Barnes says, strategic improvisation is more important then ever. “If you’re going to survive this economic downturn, you better be able to turn on a dime,” he says. “The Dead were exemplars.” 
So maybe there's more in common between open source software and psychedelic rock than is obvious at first glance.  Deadheads, feel free to check out some photos and videos from last year's appearance of The Dead at Shoreline

Note: I've also posted a version of this story at GuitarVibe.com


Is Talent Overrated?

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Recently, I've been reading Geoff Colvin's terrrific book "Talent Is Overrated." It's an exploration of how individuals (and organizations) learn and innovate.  And in particular, Colvin uncovers several myths about talent. Many consider talent, especially in music or sports, to be innate.  You either have it or you don't.  But studies indicate that that's just not the case.  And more importantly, these lessons also apply in science and business.  Did Anders Hejlsberg or Linus Torvalds just wake up one day and decide to be brilliant programmers?  Or was it because they spent years programming from an early age, learning skills and developing their technical curiosity?  Colvin makes a compelling case that it's the latter.

Instead, skills are developed over many years through what Colvin calls "deliberate practice." That's the focused manner in which people challenge themselves mentally (or physically) to become experts at new tasks.  And not only can individuals tap into the ideas here, they can also be put in place by organizations to foster innovation and creativity.  

The important point is that you have to set up opportunities to continually learn new things and develop new skills, rather than just continue to do the same thing over and over again. That's why some careers plateau and others continue to accelerate over a long period of time.  

There's been a recent study by TechCrunch that reinforces the idea even further.  Despite the popular myth that you're either born an entrepreneur or not, it seems that entrepreneurship can be learned, just like most other skills.  

What do you think?  Can learning match innate talent?  Let me know...

You can read an excerpt of Colvin's book at Fortune magazine.