Atomic Energy

Like most people – well, at least those who really get how startups and disruption work – I am impressed by Reed Hastings (Netflix CEO) willingness to take brutally painful short-term steps for the long-term benefit and viability of his company. He mentions several times in his posting that he worried about one issue more than any other over the last five years: will Netflix be able to make a successful transition from DVD-by-mail to streaming-over-Internet, or will it be too worried about cannibalizing its short-term cash-cow DVD business to successfully launch and grow its streaming business?

Clearly, Reed believes that splitting the business into two will give the freedom of maneouvre to the streaming business that it needs to grow and succeed. I respect and understand that. I also find it notable that the streaming business is keeping the Netflix name, while the DVD business is getting a new Qwikster name (which sounds suspiciously like the old Napster). But I have some key concerns about this structure:

1. A split like this makes a lot of sense when both businesses have a viable future, but each needs to grow without encumbering the other. Yet, it seems pretty clear that the DVD-by-mail business is going to die a slow death. Essentially, the executives and team left in Qwikster will have options that, over the long-term, will be worthless or nearly so. Further, the message to investors (and potential employees) is, “this is the dying business.”
2. A split like this makes sense when customers are likely to choose one service or the other, with very little overlap. The classic example is the RCA-Sony radio case brought by Clayton Christensen in “The Innovator’s Dilemma” (a must-read book for anyone in business). Customers may want a furniture high-quality radio from RCA, or they may want a cheap transistor radio from Sony, but they are unlikely to want both. And even if they do want both, it is likely that they accept the need to pay for both independently, even if bought from one retailer, who himself sources it from two manufacturers. But Netflix’s customers are retail, Netflix is the retailer who sources items, from whom customers want a single source of information – and as Henry Blodget points out, around half of Netflix’s customer base actually wants both. As such, splitting the business hurts the customers and the business. True, it is unlikely that any other business will pop up to offer both, since no one will go into the DVD-by-mail business at this point, but this is a business that could bring end-of-life profits for several years to the whole, and drive later adopters in.

Given the above, I am not sure I agree with Hastings’ rationale. His aggressiveness and willing to take risks for the long-term are to be commended, but sometimes they do lead to making real mistakes. I am afraid this may be one of those times.

I love America. One of my favourite books starts that way, John Keegan’s “Fields of Battle: The Wars For North America.” One of the things I love about America is the incredible drive for entrepreneurship, the idea that if you have an idea, well, follow it all the way through. You can be innovative in any market, anywhere (assuming government hasn’t enforced some monopoly), and if what you have to sell is a better product/market fit, including better customer service (see “Zappos” in the dictionary), you can succeed.

So given the above, I have struggled for years to understand why the US airlines have a quality of service – everything from how they treat passengers at the airport and on the airplane, in all classes of service, to the design of seats and the lounges – that is so far below those of prime European and Asian airlines.

What triggered this thought, besides my regular long-haul overseas flights, is a shower. I flew into Newark Airport early this morning, spent all day running around Manhattan, and then took the train back into Newark for my evening flight. As a Platinum member, I had access to the lounge, called the “Presidents Club” by Continental, and looked forward to a nice hot shower.

I did get my shower, it was hot, refreshing, and I felt better about finishing my day, before boarding a 10.5 hour flight. But there is no doubt in my mind that the quality of the shower, and the rest of the lounge, falls far far below what I have seen in Europe and in Asia… even over a decade ago. Newark Airport is one of Continental’s main hubs, so the lounge there is its top-of-the-line lounge; they even tout the awards it has won (although the announcement next to it about spending $500MM to refurbish the lounges makes one wonder). The lounge is nice, no question. The shower room was cold and sterile, the walls bare and industrial; the power ports throughout the lounge do not work; and the food is simple but there are no real meals. In other words, it is not remotely like what I recall of the British Airways lounges in JFK and Heathrow – even before the creation of the Terraces Lounges, and not even counting the First Class Lounge. I used those lounged over a decade ago. It is not even in the same class. Needless to say, it isn’t even in the same league as the lounges of the Asian airlines – Cathay Pacific and Singapore, notably, as well as others.

I have heard, and have said myself, that the Asian and European airlines have an “ethic of service” that Americans do not. But that is simply not true. Americans have far less patience for being treated poorly than Europeans, who are used to obtuse bureaucrats. Further, Americans excel at competition, creating great customer service differentiation opportunities, whereas the Europeans protect their national champions, especially air carriers like British, Lufthansa, Air France, from any form of competition.

So what is it? What do US-based carriers continue to underwhelm, despite real competition and opportunities to exceed?

The Atlantic had a funny article – well, funny to me, perhaps not to everyone – that Angry Birds, the game, is “costing” American businesses alone $1.5BN in lost wages and/or productivity per year, on average.  The math is very entertaining, and makes some assumptions, which they themselves admit are assumptions. Either way, they come up with the rough $1.5BN lost wages figure.

Whether the assumptions are off by 33% up – and the real number is $1BN – or 50% down – and the real number is $2BN – or any other error, the problem here is not technical, i.e. how many minutes are spent, how many of those by Americans, and how many at work, but fundamental, i.e. does it really matter?

Smart American businesses long ago stopped measuring employees by hour, even those that get paid by the hour. Employees have a task. If the task gets done, it doesn’t matter if you watched NCAA, used Facebook or played Angry Birds, the job was done. If the job was not done, well, then, it doesn’t matter if you watched NCAA, used Facebook played Angry Birds, or actually worked, the job was not done.

Fundamentally, if you are monitoring your employees every hour or minute, in other words worrying about them playing Angry Birds, then you have an problem, not because of Angry Birds, but because you don’t know how to measure success, and thus how to achieve it.

Focus on getting the job done, whatever it takes; the rest follows.

We all wish we could wish our wishes into reality – yes, that was intentional – but when a large company starts doing it, short the stock.

Apparently, Martin Fichter, the president of HTC America is convinced HTC is about to dominate the market because, well, iPhones are “a little less cool.” The story is on geekwire.

I am not quite sure how you scientifically measure cool. But this is clearly Fichter wishing iPhone were less cool, so that more people would buy his (obviously cooler, in his not-so-humble opinion) HTC phones.

I give HTC a lot of credit: they were a nothing company, that managed to build white-label smartphones for carriers, in Europe and then the US, on Windows Mobile and eventually to make its own name in Android phones. But cool? Perhaps for techno-geeks deep into specifications. However, “cool” is determined by the market at large, and HTC doesn’t have it. If they *really* got cool, they wouldn’t be named “HTC”, would they?

Some day, someone will put the iPhone and its Apple successors away for good, and it will be the right combination of featureset (functionality) and design (style). But unless it becomes extremely cheap and commoditized, the style (cool factor) is not coming from a company named HTC. If you want to be have “cool” products, your corporate branding has got to be cool too.

In a piece of good news, Yahoo finally got rid of Carol Bartz. She had been brought in to turn around the ailing company, one-time icon of the Internet about which it was said (including, supposedly, to the Google founders), “search is over.” Unfortunately, the situation never improved, and it seemed clear for many, at least on the outside, that she wasn’t going to be the one to save it. The market appears to have agreed, as shares rose 6% on the news of her firing.

At the same time, what a piece of unprofessional behaviour all of this was. The Board fired her… by phone. Yes, by phone. When you need to lay someone off or fire them, unless time is of the essence and they are too far away to reach in time, or there are legal implications, you do it in person. You do it in person not because you love them; you actually may hate them. You do it for four reasons: because (a) it is the right (“mentschlach” is the phrase in Yiddish) thing to do; (b) you never know where and when you will work with them again; (c) you want to ensure they leave in a way that has no negative impact; and most importantly of all, (d) it is the right thing to do.

I once worked with a guy who flew from New York to London, overnight, to lay one person off, then turned around and came back home. He could have found a reason not to spend all of that money, and not be away from his family, but it was the right thing to do. I knew another who laid off people by phone from New York to Boston – all of a 4 hour train or car ride or one hour plane ride – because he couldn’t bear to look them in the face. He was a colleague of mine… and my respect for him never recovered; I can only imagine how the people he got rid of felt.

I suspect the Board also couldn’t bear to look Bartz in the eye, primarily because the failure of Bartz is the failure of those who hired her, the Board. People like Roy Bostock, David Kenny and Brad Smith should know better.

But it sounds like Bartz deserved her peers. Apparently, shortly after being fired she sent an email to the entire Yahoo staff saying, “I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s Chairman of the Board.” The manner in which she was fired did not need to be broadcast, and sounds very much like an emotional, “well back at you!”

The lack of professionalism on both sides, based on press accounts, is astounding.

Yahoo is one of the all-time great Internet companies, and as much as it has been totally eclipsed by its competitors, it appears its own missteps have done it far more damage.

Roy, Jerry, the rest of the Board: you need a real strategy for this company, not some Knight in Shining Silicon Armour. Work as a Board, work hard, bring in whoever you need to help you do your job – I can recommend some good full-timers and consultants – set a strategy, and then hire the best person to execute it. But stop looking for the Messiah.

I had an interesting insight a few days ago, one that I have had before. I have always loved the phrase “Nature Abhors a Vacuum”. While in the physics term, it normally means that if you have a vacuum, i.e. lack of anything, nearby physical elements will expand to fill it (generally limited to gases and, to some extent, liquids, but this is not a physics lesson and my undergrad engineering was almost 2 decades ago), this phrase has particular application in the psychology, and hence business, realm.

Quite simply, if you don’t clearly inform your customers/partners/employers/employees what to expect, they will make assumptions. There is an old line about never to “assume”, which I won’t quite repeat here, but assumptions can be dangerous or even deadly.

In the technology business sphere, setting expectations, the lack thereof that companies do, comes down to three areas:

• What features a product/service will have
• When a product/service will be delivered
• How a product/service will perform

In the army, in Hebrew, we used to call the second element a “tavlat yiush,” or “despair schedule.” You could put up with any awful post, as long as you knew when it was going to end. If you didn’t, well, nature abhors a vacuum, and people will make their own expectations, which will either be worse, leading to real despair and loss of energy, or better, leading to even worse despair when they are not fulfilled.

The last case is interesting. Most online businesses have some form of redundancy, across stacks of technology in a single data center or across data centers. These redundant stacks tend to be installed for their own reasons – sometimes redundancy, sometimes staged deployments, sometimes cold, warm or hot standby. But they often tend to gain other uses over time that may even eclipse the first. These uses – and sometimes even the original usage – lack clear Service Level Agreements (SLAs) as to what they will provide and when. Over time, the lack of clear SLAs leads to people inside and outside the company *assuming* (that dangerous word again) that behavior will conform to certain parameters.

I have seen this several times in the past few years. The solution is three-step:

1. Figure out what one or two metrics of service level people are making assumptions about.
2. Get everyone who can figure out what service level the company can provide right now, with no changes, into a room, and don’t leave until you figure out what it is right now. Make sure you can really commit to these today.
3. Clearly publicize what today’s service levels are to every level of the company and even customers.

Of course, plenty of people will be really upset; after all, you are shattering their expectations. The most upset may be the CEO (with whom you should check before letting the data out to customers, as it may violate signed agreements). But this step is crucial, if you ever want to get to positive SLAs. Once this is done, then you can begin recovery;

• Get the same people into a room, and figure out what you need to do to improve service levels in at least 2, if not 3, ways.

Now you can go to the CEO and executive team, and say, “OK, you don’t like today’s, I understand that, but that is what there is. Now here are three options for improving them, with budgets and timelines. Which, if any, do you want?”

I have done this process multiple times, both as a VP in technology and as a consultant. It is difficult, challenging, and absolutely thrilling… when your technology division operates at the level people expect.

It is about time someone with more heft and readership than I have said it. I recommend everyone read this.

http://www.businessinsider.com/how-to-get-rid-of-patent-trolls-for-good-2011-8

Good for Pascal-Emmanuel Gobry!

As a quick example: it is pretty clear that a large part of Google’s purchase of Motorola Mobility for $12.5BN is for their patent portfolio. Google could easily invent anything relevant to their current and future needs; but you cannot create the legal protection – protection money? – that the portfolio gives. Even Icahn, who has been pushing Motorola to do a better job of managing its patent portfolio, indicated that he is reasonably satisfied, and that they got a good but reasonable price (IIRC) for the patents.

Google has a ton of money, but it is out and out absurd for them to spend even half of that $12.5BN just to get arms for legal warfare! I know that Congress is populated with attorneys, and to them fixing the patent issue is anathema as it reduces the amount of employment for lawyers – the Bar Association is simply a trade union for attorneys – but we need to change this, and now.

Kudos to Pascal-Emmanuel. To the barricades!

Continuing our previous article, Amazon, with much fanfare, released their html5 offline Kindle app, http://read.amazon.com. It has been heavily reviewed, obviating the need for another extensive review. Suffice it to say that the book addict in me loved the platform (yes, I tested it offline), while the engineer in me loved the design and engineering. It actually took my wife a few moments to realize we were in a Web browser, and not in the Kindle app. It even syncs up your last read page, as with other Kindle platforms.

A big reason Amazon launched it – and the engineering manager in me knows it was not a cheap effort – was to bypass Apple’s land grab of 30% of revenues of anything sold through or even linked to through a native iOS app. Give credit to Jeff Bezos and the Kindle team, they did a great job. The Web reader success now largely depends upon how well they let the native app wither on the vine. As long as it remains strong, customers are likely to continue using it, ignoring the Web reader… and thus losing book sales revenue.

What does this have to do with the WSJ Tablet Edition? Two things:

• Will the WSJ (and other newspapers) eventually do something similar, and have html5 offline Web apps? If I were in charge of digital strategy for WSJ, I certainly would at least be modeling the financial implications from a cost and a revenue perspective, as well as market share. I would even think about Web as the primary platform and the native app just a link.
• Amazon is consistently focused on the easiest way to convert a potential customer into a paying customer, and expended huge engineering effort to continue to do so without increasing their variable costs by the Apple 30% tax. The WSJ has yet to do even the basic work to help them convert. Amazon *gets* retail; it is time the Journal did as well.

Yesterday, I bought a subscription to the WSJ Tablet Edition.It was ~$18/month, and includes simultaneous access from three devices (any combination of iPad, iPhone, iPod, Android) and Web access. It includes archives for 7 days offline, and access to the US, Europe and Asia editions. Compared to the $28 I was paying for the local copy of the WSJ Europe, it is a bargain, and means I have it whenever I travel. Further, it integrates sharing articles by email, Facebook and Twitter. While I worried that I will miss my physical paper, especially on the Sabbath when electronic devices are off-limits, the reality is that I generally don’t read newspapers on the Sabbath, and last night, while sitting in bed, I read the entire US WSJ on my iPad and loved the experience. So this morning, I cut the cord on my printed paper.

There are definitely shortcomings, and the ads are a little *too* obtrusive, but overall it is a good change.

The biggest problem, though, is the nightmare that managing the subscription has become on the WSJ Web site, http://online.wsj.com. I fail to understand how a company that can make a successful Tablet app for both iPad and Android, and a top-rated Web site, still hasn’t figured out how to manage accounts. Even worse, it is nearly impossible to find pricing and where to subscribe, and how to compare Table vs. Mobile vs. Print vs. Online vs. packages of two or more of the above. I can only imagine how much better their sales would be if they actually did those things in a sane manner. It is hard to believe that any online business actually would make it difficult for willing consumers to shop and buy.

Of course, perhaps the very fact that there are completely different email addresses and phone numbers for the Tablet Edition subscriptions vs. Online/Print Edition subscriptions is an indication of organizational dysfunction. I have fixed that type of dysfunction in the past as a consultant, would love to do it again, but I think that News Corp. likely has enough on its plate right now that it is unlikely to focus. Pity, it would be fun for me and lucrative for them.

What does this have to do with books on the Web? Stay tuned for part II.

Steve Blank had a great article today on how Silicon Valley changed the very culture of business, wherein engineers and scientists led the business. One of Steve’s main points is how, like in research labs there is no penalty for making mistakes, similarly in the market, these entrepreneurial firms used the same culture to experiment (in Steve’s language “pivot” while “searching for a customer”), until eventually finding sustainable business models.

Steve maintains that this is one of Silicon Valley’s biggest contributions to business, the trial and error, experimentation-oriented engineer/scientist running the business in the same way, not just the pure science research. Back in the early days, as he points out, there were no MBAs in the industry to “get in the way.”

I think Steve is right about the contributions this culture change made (and I am most intrigued by his allusion to something special happening this Friday), but I believe the reverse is true as well. I have an MBA, in addition to my engineering degree, and I value both. I consider both invaluable investments, and I consider myself an engineer at heart. But I am also aware that the MBA has shifted. MBAs nowadays, at least some of them (plug for my school Duke), have learned the value of entrepreneurship and innovation, trial and error, and the difference between expanding GE and starting Google from scratch (a classic case of searching for a model for a long time, double entendre intended).

Back in the 60s and 70s, MBAs would have been detrimental to the Valley’s entrepreneurship and squashed the culture. Nowadays, assuming you get the right people (which is as true for engineers as it is for MBAs), they truly can add value, but largely thinks to the influence the entrepreneurial world has had on the old world of business.