Google Neuroscience

Following up on my last blog on “Google Googly” (http://pgmadblog.blogspot.com/2009_11_01_archive.html), I take a deeper look at why the Google business model works and what other businesses can learn from it.

Google is into everything these days but Search and AdWords are still their “bread and butter” business. Search was their initial focus and it took a while for them to figure out how to monetize it via AdWords. As I mentioned in the last blog, their core DNA is this: Wherever the user is searching “content”, Google wants to provide the most popular results while proffering some paid-for ads.

Why has this model been so very successful? It has to do with neuroscience – how our brains work!

Once we have made a purchase decision and acted on it (made the purchase), it is pretty obvious that we will have little interest in additional ads. The “Purchase Funnel” on the left shows the various relationships. “Branding” has an important place in advertising but it is a long drawn-out awareness creation process. Plus there are no easy metrics such as CPM (one of the many so-called “click metrics”) to connect the ad to influencing the eventual consumer decision and action. Google happened to have landed, by design or luck or both, in the perfect spot in the Purchase Funnel!

When we “Search”, we are in the information collection phase (by definition). We are willing to explore and click through various informational pieces on the screen such as text ads – if they seem relevant and related to the information we are after, the more likely that we will click through. But after such explorations, consumers want to move on to the Decision and Action phases if their search was driven by a purchase need. Once we have finished the Action, we have no real patience for more ad watching – we have made our purchase and we want to enjoy it; this isn’t the time for more awareness-generating branding-type ads either. We are in a satiated state after a purchase action and our brains are not looking for more information to process.

In summary, in the information acquisition phase, we see significant consumer “traffic” and the click through of many links in an effort to gather the best information. This is Google’s realm – they provide very good search results and provide many good opportunities to click through, thus generating massive revenue via AdWords business model. But once I click through to a final destination such as a Wall Street Journal article by Mossberg, I am keen to read it rather than pay attention to any ads; I am in the satiated state – I do not care about banner ads that create awareness about random products, let alone make the effort to click through other ad links. Ads in the IDD (Interest, Desire, Decision) stages are most directly useful to the consumer and most monetizable via measureable “click” metrics.

This explains to me why Google business model works so well for them and why content business cannot monetize increased traffic (provided by Google) to their “terminal” sites. It is neuroscience!

Are there other cases where Ads in IDD (AIDD) will work? Look for opportunities when consumers are “searching” in a purchase context; at that time, provide them with “useful” ads and generate metrics to monetize.

I will reveal an AIDD business that parallels Google in the mobile world in my next blog. In the mean time, think of other cases where AIDD will work. Let us hear about it . . . after you have patented it. J

PG

Google Googly

I am sure you are as much of a Google watcher as I am. I have read various books about Google over the years but the most recent one from Ken Auletta (“Googled: The End of the World as We Know It”, Nov 2009) is particularly interesting to me as Auletta brings his media-writer cred to his analysis of Google.

For those of you who are not cricket fans, “googly” is a very effective pitch where the arm action indicates to the batsman that the ball will go one way but the ball actually kicks off in the opposite direction! As you can imagine, a googly can be very effective in getting batsmen out. Google is definitely a googly pitch – it goes in the Search direction but can kick off in totally unexpected directions and take out many existing businesses (which may have started to happen already).

Googly is NOT an evil pitch. Neither is Google – for the most part thus far. But there can be un-anticipated consequences in the offing!

Auletta calls Google the best Internet “navigator”. Allow me to use the Information Booth in a large mall analogy – you walk up to it and ask a question; they will not only tell you which stores sell shoes but also which sell high-end, athletic, low-cost and so on. Google does this admirably well. They direct you based on popularity – which is definitely one effective criterion (there could be others such as “quality” but in many instances, the “wisdom of the crowds” does work).

I was in the market for an all-in-one printer for home recently. With Google as a proxy for things we do on the Web, let me say that I would have been sunk without Google. Along with the search results, ads based on their AdWords program, the user-reviews and expert-reviews were most useful. I got a lot out of user-reviews but the “crowd speak” is not always easy to decipher. I also need expert-reviews to get a systematic and consistent breakdown regarding the features of potential printer choices.

Newspapers that go online may find a lesson here. An editorial by Thomas Friedman is like an expert-review – I may happily make a micro-payment to read it online. But daily news that is available from myriad sources ought to be available free. Why? I am not an intellectual property rights (IPR) lawyer but having generated enough IPR and protected them, I have a sense of copyright that may be different from the commonly accepted. Every written bit is not “copyright-ful”. Remember, patents have to be novel, non-obvious and useful. Reporting that Senator Reed has a Healthcare Bill ready is not “copyrightful” but an in-depth analysis of the Healthcare Bill would be – because it is non-obvious. Items that are “copyrightful” in this sense ought to be protected and their value affirmed by seeking permission for their use (even for searching it) with appropriate compensation.

Google has done better than “don’t be evil” in providing us with a great way to search the Internet. But when you are finished with cataloging the Internet and making it searchable, where do you go to expand your business? Any source of knowledge (books, TV shows, music) seems fair game to Google. Wherever the user is searching “content”, Google wants to provide the most popular results while proffering some paid-for ads – this is their DNA.

It is in making any content searchable without affirming its “copyrightfulness” that Google’s justifications seem self-serving. And they are being gradually hemmed in by various entities litigating to affirm the value of copyrightfulness. Here, Google has to micro-share its ad revenue for “copyrightful” items and spread a little bit of its wealth around - looks like they have enough to go around: a case of the little “flood that floats all boats” a little bit.

This is the true “democratization” – Google improves transparency which engenders cost/price “arbitrage”. A natural consequence of such transparency is commoditization but by expanding accessible markets, Google is helping to create huge volumes albeit at falling margins (partially compensated by Google’s ad revenue sharing for copyrightful items, I hope).

Such commoditization may seem frightful but there are many industries that thrive in such a world – consumer electronics for one. LCDs used to cost $2500 two years ago but can be purchased for $600 today. So what do they do? They bring in a ultra-thin LCD that they can price at $4000 today; price will erode to commodity levels in a few years but they get frequent revenue spurts driven by – INNOVATION.

Democratization will thus drive compressed commoditization-innovation cycles. Commoditization will also drive consolidation especially of the laggards in innovation. Is that “The End of the World as We Know It”? Is the “googly” coming at you or are you safe this time?!

Current weather in Seattle is not conducive to writing a haiku – so I repeat one from before that seems relevant to this blog . . . Enjoy!

PG

“Complex problems have
Simple, easy to understand
Wrong answers”
- by VR

Digital Signage the Next Medium?

Advertisers are always looking for ways to reach your eyeballs. But simply entering our field of vision is just the first step. The advertisement should engage us, be relevant to our situation and help us make a purchasing decision. Historically, “out of home” advertisements (as opposed to “in home” ads seen on TV, for example) have been the static variety –large billboards along the highway or posters on walls with unchanging content.

With the advent of electronic displays, it has become possible to duplicate the concept of static ads (think of old TV sets used for information display in lobbies) with ease. This has been going on for well over 15 years. This method of conveying information is called “Digital Signage”. Companies such as Scala, to mention one among many, have been providing software, media players and related technology necessary for Digital Signage. Ad Signage companies such as Focus Media have been contracting with location owners (such as office tower owners), and using Digital Signage technology, create and display content in elevator lobbies. As the content and business owners, Ad Signage companies have been operational for over ten years; however, as we near the end of this decade, it is not clear that their business is thriving.

As the owner of a Digital Signage technology company, I have had the opportunity to occupy an inside-the-ring “seat” in this industry for the past couple of years. I believe that the ecosystem is broken, the business model is upside-down and the technology needs to be revamped. Allow me to outline why I think this is so and how Digital Signage industry can be reinvigorated... MORE in my whitepaper (click the link below).

PG's Digital Signage Whitepaper: "Business IPTV Service – A New Cloud Business Vertical"

Whitepaper Summary: Digital Signage business of video ad delivery to public display and mobile screens is at a tipping point in 2009 but the current ecosystem is not set up to tip it right! Business model and technology solutions have to be reconfigured into a cloud business vertical –“Business IPTV Service”: a business and technology platform that telcos and other cloud service providers own over which multiple ad signage virtual operators function. If ecosystem rebuilding starts now, Business IPTV Service will be a multi-billion dollar business in Greater South East Asia alone by 2015.

Startup Pains & Pleasures #4: Workplace Creativity & Fermi Problems

In my blog last week, I talked about my everyday creativity “trick” - if you cannot solve a problem, find an approximation of the problem that you can solve. If this solution is adequate, meaning it is still of business or technical value, if you can “sell” the approximate solution, do it. Then try for a closer approximation of the problem and solve it; this will be your version 2 solution!

Have you tried “creativity by approximation” yet? I will give you a very simple example from last week. My wife picked me up from the airport and during the drive back, said to me, “I meant to vacuum the whole house before you got back from Tokyo but as I was too tired, I just did the heavy-traffic areas”. I was pleased that a readymade example for my creativity “trick” had suddenly dropped in my lap. She approximated the “whole house” by “heavy-traffic” areas, solved the problem, and had energy left over to go out later that night. This is classic day-to-day creativity!

Is there is a *systematic* way to arrive at approximate solutions? There is: a favorite method of mine known as “Fermi Problems”. Author Hans Christian von Baeyer has a classic article on Fermi Problems called, “How Fermi Would Have Fixed It” (Sciences; Sep/Oct88, Vol. 28 Issue 5, pp2-4).

Let me explain the classic Fermi Problem method using an example. When I taught Probability Theory & Stochastic Process to EECS students, the first question I asked them in the very first class of the semester was the following: “How many piano tuners are there in Ann Arbor?” When the class acquired a collective glazed look in their eyes, I took them through these steps:

1. Take a guess at Ann Arbor’s population – say, 300,000 people.
2. Now, assume that an average family contains four members. The number of families in Ann Arbor must therefore be about 75,000.
3. If one in five families owns a piano, there will be 15,000 pianos in Ann Arbor.
4. The average piano tuner:
a. Can service four pianos every day of the week for five days and
b. Has two weeks of vacation during the year

- A typical tuner would service (4 pianos per day X 5 days a week X 50 weeks per year) = 1,000 pianos per year.
- So, there must be about 15 (15,000/1,000) piano tuners in Ann Arbor. Check the telephone directory Yellow Pages and see what you find . . .

The guesses in the first 4 steps are totally unrelated. In statistical terms, these random variables are independent and hence the errors in these guesses tend to “cancel out”. Approximate solutions arrived at using the Fermi Problem method are surprisingly good (within an order of magnitude of accuracy) and hence very useful for practical situations.

What this tells us is that when confronted with a problem, do not be dismayed by a lack of information; Get Creative! – (a) break the problem down into a number of sub-problems and solve the sequence or (b) solve an approximation of the problem.

In the first case, you find approximate solutions to a bunch of exact sub-problems and in the second case, you find an exact solution to an approximation of the problem. In either case, the approximate solution you reach is a creative way out – either when you are in a tough job interview (you may recall the infamous Microsoft and Google interview questions!) or when confronted with a rough practical situation.

Next blog onwards, I will leave the Start Up topic and move on to other interesting issues.

Enjoy the haiku . . . PG

“Summer evening
Hear the breeze caress the leaves
Honey BBQ flavor!”

- AM

Startup Pains & Pleasures #3 - Workplace Creativity

Before I discuss creativity in the workplace, let me dwell on some topics related to “Axiomatic” HR from last week’s blog. I encourage you to check out my readers’ comments also.

First of all, “Company Priorities” are the axioms that drive more than just HR (even though I do not use them to identify what markets to address or products to produce). Let me give you an example beyond HR. When we were deciding on how the architecture team members would exchange design information, one factor guiding the decision was the “Globally-integrated Business” priority. Even though there was no immediate need for a sophisticated solution, I decided to adopt “Webex” - a conferencing tool that allows employees dispersed worldwide to collaborate effectively at low cost. In general, what I found was that if I consistently used the axioms, making even simple day to day decisions became easier, and quite importantly, easier to explain to team members.

One of the unanticipated and rather startling insights that came about was related to “tiled teams”. Such concepts are never right or wrong, rather a question of whether it is right for a certain time or a stage of company growth. Anyone who has done a startup knows: startups go through many “near death” experiences! The reasons are many; ours were never due to product or market collapse (we had done the technology before, had the required licenses and had great ecosystem partners). Ours were due to the classic reason for startup near-deaths: dried up cash flow – especially after the October 2008 Great Recession.

There is no doubt in my mind that “tiled teams” are ideal for a going concern with sustained cash flow. In retrospect, however, it seems to me now that when going through near-death experiences, things may have been a bit easier if *everyone* pulled in the same direction (which is more likely to occur when all the team members are like-minded). A near-death experience is not the time to expend a lot of energy “herding cats”. In other words, “tiled teams” may *not* be the best for an angel-stage startup, but may be ideal for a later Series C-stage startup enterprise.

Summarizing, start as a “garage” operation, locate near the VCs, don’t enter into personal liability and keep over 50% ownership of the company to yourself. Find axioms, whatever they may be, that capture core company priorities; let them drive every internal decision possible. At an early stage, start with teams of like-minded people and as your company becomes self-sustaining, remake the teams into “tiled teams” by mixing in new hires with non-overlapping skill sets and behavioral styles.

Creativity: With respect to creativity, I hope my list of US patents and published articles lend credibility to what I have to say on the topic.

As you will note on the right-hand side of the page, I see creativity and tenacity as tightly coupled; in fact, as two sides of the same coin. If you are not tenacious, give up easily and move on quickly, you never arrive at the stage where you have to grapple with an issue long enough to bring to bear your creativity and ingenuity to solve it. Here I am talking about day-to-day creativity and not “high-level” grandiose creativity.

My “trick” is very simple: if you cannot solve a problem, find an approximation of the problem that you can solve. If this solution is adequate, meaning it is still of business or technical value, if you can “sell” the approximate solution, do it. Then try for a closer approximation of the problem and solve it; this will be your version 2 solution!

I have never met a problem - be it in business, marketing, product design, technology, signal processing, whatever – that I cannot solve in the sense of the previous paragraph. The key is “approximation”. Actually what makes this approach viable is that one can make precise statements about approximations – people well-versed in esoteric topics such as measure theory and functional analysis know this fact very well (the precise concept of “almost everywhere”, for example). In fact, such concepts lead to rapid expansion in certain areas of pure mathematics and the solution to a large class of problems; these developments have had a direct bearing on advances in the engineering fields of image and signal processing which have given us a profusion of incredible consumer electronics devices in recent decades.

If one cannot make precise statements about approximations, the solver and the solution user may both be unclear about which problem was actually solved and what the roadmap is to arrive at the full solution. Let me give you an example from engineering within a B2B business context. Typically, development starts with an RFP (request for proposals) from a buyer to a vendor with a long list of requirements. Even in a prototype-driven development model, something similar happens. The first step of the “approximation” that I talk about is this list of requirements. In all likelihood, meeting all the requirements in a first generation product will make it expensive and the early end customer will use only a subset of features!

The vendor and the buyer should negotiate to identify the first subset of requirements to meet (product version 1), then decide which requirements to meet (and when) in the next step (product version 2) and so on, to create a solution *roadmap*. This is the “precise statement about approximation” that I am talking about – nothing very esoteric as you can see; I have simply made it explicit that the product solution is not a “point” event but a “trajectory” and called it out using some new terminology.

If used consistently, this same approach also contributes to *personal creativity*! Whether you are arguing with your teenager about course of study or you are grappling with an engineering problem that was assigned to you, you can use this “creativity by approximation” method. I am sure you have experiences along this line and look forward to comments and stories that embody the sentiment: “creativity by approximation”. Give it a try in a potentially creative situation during the coming week and tell me about it . . .

Enjoy the haiku . . . PG

Let us conclude with a random haiku . . .




“Pedestrian mall
In central Ginza on Summer weekends
Street shamisen music”


- PG

Startup Pains & Pleasures #2 - Axiomatic HR

As I mentioned in my last blog (Startup Pains & Pleasures #1 – Funding), I had set out to start up a real business and not a garage operation. Therefore, I spent a considerable amount of time thinking about people issues – what kind of people do I want in my company, how do we evaluate ourselves in a transparent way, what would help all of us contribute positively and so on. This is what I came up with over one or two months . . .

I call it “axiomatic” HR (human resources). The idea is that there are a few core basic beliefs or values or axioms for the company. Answers to any questions within the company can ultimately be found if you refer back to the axiom; or in a more mathematical way, every evaluation, promotion, interaction and other procedures can be generated from the few basic axioms. I called them “Company Priorities”.

Company Priorities:
• Tiled teams
• Globally-integrated business
• First to market
Tiled Teams: Microsoft used to try to hire clones of BillG (called “hardcores”); can you imagine a 10-person team of all hardcores?! I am a strong believer in and a practitioner of teams created by “tiling” great people with minimal overlapping talents and skills (with a few hardcores here and there). Tiling helps minimize “group-think” which is the unintended effect of the natural human desire to associate with like-minded people. Leading “tiled” teams is tricky – a hardcore could try to bully the rest but the team leader has to maintain good team dynamics without stifling the hardcore. I start by requiring any team I train to read (and re-read) the STAR Engineer paper (“How to be a Star Engineer”, IEEE Spectrum, October 1999). I then take every team in the company through a training exercise I have developed. Team leader is usually kept very busy!
Globally Integrated Enterprise: Sam Palmisano of IBM wrote (Foreign Affairs, May/June 2006): “A Globally Integrated Enterprise is a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production and value delivery worldwide.” I see three major benefits to the global approach: (1) lowest cost, (2) best talent wherever available and (3) “tiling” at an organizational level leading to a highly creative and dynamic enterprise.
First to Market: Being the first even with a sub-optimal (yet bullet-proof) product is a critical success factor. May be all the bells-and-whistles are not there (“sub-optimal”) to make the early release date but the features you advertise should work flawlessly (“bullet-proof”). Once you are in, you can add features in consultation with the customer.

Employee and the manager assess employee's performance purely based on its contribution to company priorities. Any employee’s work result ought to be traceable to one or more of the 3 company priorities. When in doubt, apply this test: Is my action going to move the company priorities forward? If so, do it; you don’t have to wait around to ask for permission.

Creativity in the workplace is another interesting topic - more about that next week.

Enjoy the haiku . . .

PG

Let us conclude with a random haiku . . .


“Complex problems have
Simple & easy to understand
Wrong answers”

- by VR

Startup Pains & Pleasures #1 - Funding

People often ask me, what are the three hardest things about a startup? Raising money, uncovering cash and finding funds – without a doubt, this is the single hardest issue. A variety of factors contribute to it.

1. Stage of your startup. My experience is with what is called “early-stage.”This is when a germ of an idea needs to transform into a basic business. Angels or well-wishers, and then what are called SeriesA VCs (venture capitalists), fund you till the next stage. Zaplah needed US$3 to 5 million to complete this stage. Clearly, there is maximum uncertainty at the early stage and very few startups get beyond it.

2. External events. As I was getting ready to move beyond angel stage to early-stage VC, the October 2008 global meltdown occurred (my brother uses the word “meltdown” dismissively; maybe that is because in India where he is located, growth is still 5% (positive) but in places where Zaplah was relevant such as Singapore and USA, GDP was going negative). Okay, so let us call it the Great Recession; my only advice – don’t do a startup before a Great Recession (if you can tell it is coming!).

3. My lessons. As a veteran of the industry, I wanted to start building a business – don’t do it! VCs will NOT fund such an effort; they fund clever little ideas *at this stage*. Nobody funds the building of a solid new business even by a veteran. There are a bunch of “valid” reasons for this...

• During the early stage, investors want the bets to be small due to the large risk and hence small outlay.


• VCs want the startup to be in their backyard so that they can check up on it frequently. This is the push back I got from the 30 or so VCs in Silicon Valley I talked to. Zaplah is located in Singapore.


• VCs in countries outside the US are more risk-averse than US-based VCs. Singapore VCs have an appetite for early stage funding of chunks less than $1 million. Their horizon is very immediate – for great insight into Singaporean entrepreneurism, read the memoirs of the father of Singapore, Lee Kuan Yew (From Third World to First : The Singapore Story: 1965-2000 by Lee Kuan Yew). He talks about the Hakka community from mainland China who are the majority in Singapore - they are merchants who tally their sales and profits at the end of every business day! Quick returns are expected. I am definitely a super advocate of Singapore’s future role as a beachhead for a Greater SE Asia strategy – more in a later blog.


• Talking about VCs outside USA reminds me of another story.

By the way, I will alter the names of people and identifiable details so that none of you “blofers” will sue me. [I am a “blogger”; I have not found a good term of someone like you, “blog followers” – “blofers” is what I have coined. You are super-important to me; I and other blofers want to hear your comments and ideas]

• The story goes like this… I wanted to raise $100,000. I talked to a guy in the Middle East and he asked me how much cash I had to put in? I said “zero”. He said, “I will give you $100K and I will own 100% of the company. Else, I will give you a *personal* loan for $50K (with all the personal liabilities) which you put in and I will put in the other $50K and you and I will own 50% each!” If this story does *not* strike you as bizarre, you do not know the entrepreneurial philosophy that made Silicon Valley what it is.
• Also, watch out for how much of your company VC’s want to own. As a good industrialist friend of mine reminded me, it is like the “The Old Man and the Sea” (my all-time favorite fiction book; see the right margin for my non-fiction favorite); by the time the marlin is brought ashore, the sharks (you know who they are) have eaten all the flesh and you are left with the bones!
  
  So start as a “garage” operation, locate near the VCs, don’t enter into personal liability, and keep over 50% ownership of the company to yourself.
  
  Who you have in your team and how you measure yourself are super important factors - more about that next week.
  
  Enjoy the haiku . . .
  
  PG

Blofer-sans, please post your comments and questions; I would love to hear from you.

Let us conclude with a random haiku . . .

Hanami festival in Tokyo in April/May is a time when *everyone* makes it a point to sit under a sakura tree.

"Sakura falling on office-mates
Cool evening
Warm sake"

- by PG

Startup Pains & Pleasures #0

Weekly post of PG's experiences with startup Zaplah Corp . . .
PG




Let us conclude with a random Haiku . . .
Hanami festival in Tokyo in April/May is a time when *everyone* makes it a point to sit under a sakura tree.


"Sakura falling on office-mates
Cool evening
Warm sake"