Paul Reuter, who later founded the Reuters press agency, used a fleet of pigeons to deliver news and stock prices, including the outcome of the Battle of Waterloo, which helped his clients trade on valuable information before their competition.  Every company can find an information advantage, if they are creative enough. 

On June 3, the Wall Street Journal reported on Wal-Mart’s quiet launch of Oodle.com, a free classified service that carries 30 million items – from Madonna tickets to houses.  Of course this will give them even more traffic to Walmat.com, and provide service to their 130 million weekly customers.  But the more interesting angle is how it allows Wal-mart to better understand consumer demand.  They already dominate all other retailers in their ability to spot trends, analyze data, and capture demand – from Hurricane stock ups, to college car washes, they see them coming.  My bet is that they have ramped up Oodle.com so that they can get access to the new frontier of insight which will come as they analyze the used market, and items they don’t carry.  They can see the used price for things they sell, for things that complement things they sell, and for things they don’t sell, but may be good indicators of consumer sentiment – like cars.  Wal-Mart now has a view into an entirely new set of transactions that helps them to run their core business even more powerfully.   The advantage has migrated from analyzing just purchasing behavior of the new to the new and used. 

They are not alone in creating such an information advantage.  In December Goldman Sachs bought Litton Loan Servicing, which is a mortgage servicing company that services high yield loans.  They used Litton to buy Fremont General’s loan servicing rights for $12.2 billion in loans as well.  Not only will Goldman make money on servicing the high priced loans, but as importantly, by buying this asset, they are able to get superior access to information about the mortgage market more broadly.  The information premium can be found by understanding not only the sourcing, structuring and trading of assets, but also in the servicing behaviors too.

Likewise, back in 2005, Aetna bought Active Health Management a healthcare data analytics company for $400 million to help them better understand consumer behavior, and early indicators of problems so that they could design superior health management plans.  For Aetna to take the next step in accurate pricing and better client servicing, the needed a more complete predictive model of customer health behaviors so that they could intervene with a diabetic by having a nurse call him to take his insulin shot – and they know to make the call due to behaviors tracked by Active Health’s data.  The competitive battle ground is not just in pricing and claims anymore, it has moved to predictive analytics and health management. 

So the questions are:

Where is the information advantage in your industry?

Are you making the strategic moves to capture it and use it to drive value?

The easiest way to increase productivity of your knowledge workers is to simply increase the amount of “screen estate” they have.  I recently suggested that a firm add an additional screen for all their customer service workers and you can see below that in a month’s time, the time per call decreased from about three minutes and fifty seconds down to three minutes and twenty seconds – 12% — with no additional training or change in the work load or work design. 

Because of habit, most firms never consider increasing the size of the digital window, or windows, that we work within.  If Henry Ford were around you can be sure that his employees would have at least two screens – and often more.  Most people don’t know that you can add an additional screen to any laptop and by changing the desktop settings – which takes less than 15 seconds, creating a continuous work space from one screen to the next.  The mouse moves across; you can drag applications to the other screen seamlessly.  (Windows can drive up to ten screens if you want to get fancy!)Why bother?  Well, two screens allows you to open two full sized windows or applications at once, so if you are looking at your email, you can also see your calendar, or open a written document.  With the trivial cost of 15-19 inch screens (many under $100), every knowledge worker should have at least two screens – because they will pay for themselves almost immediately.This handy tip is part of a larger concern I have.  With the exception of extreme knowledge work jobs like bond trading, or flying a combat aircraft, companies have not thought creatively about the interface of their knowledge workers and the information tools.  For those familiar with “The Bloomberg” – the information utility designed and delivered by Mayor Michael Bloomberg’s eponymous company, it usually comes two side by side screens in the typical installation. 

When I started using my new Amazon Kindle, their 10.3 ounce electronic reader, it became clear to me that Jeff Bezos is rewriting our relationship to content and information devices.  On My Kindle (yes its content is customized to me), I can access 115,000 books, 327 blogs, 18 newspapers, and 15 magazines, play MP3 music, read and send email, browse the internet, look up the meaning of any English word instantly, and view files – and it boots up in less than ten seconds.  No wonder they can’t keep it in stock.  Some of the functions are clunky – as you’d expect in version 1 – but book reading is easier than “using” a paperback.  Amazon charges a hefty price for both the device ($399.00), digital books ($9.99 to $120.00 or more), and even blogs ($0.99 per month for O’Reilly).  Not only is Amazon getting paid for digital content but the Kindle allows them to link content to customer – the Rosetta Stone of any media company. 
The mind reels with what CEO Bezos will be able to do if he can achieve mass penetration of this device.  The Kindle is not just a reader, it is an entirely new form of network computer – and like the BlackBerry, will create a whole new sets of user behavior.  Given that Amazon knows me, my credit card number, my buying habits, and they back up all the electronic content on my Kindle – including my notes – they can become the portal for any and all relevant media.  iTunes should take notice, as should every media company.     
The general lesson for all companies is that Amazon has this breakthrough strategic option because Bezos did not stick to his knitting.  Think of the courage it took for Amazon to enter one of the most crowded and competitive product categories in the world – consumer electronics.  Imagine trying to get investment capital within an old line company like the New York Times – to create a product like Kindle.  My bet is that the executive chorus would universally shout: Stick to our knitting! (even if our knitting is predictably shrinking).   
In a recent Business Week interview Bezos said that companies which innovate within their existing competencies are doomed to fail; innovation means building new competencies.  Gary Hamel eloquently said in his book Leading the Revolution most executives in an industry are “blind in the same way” – both to what is happening and to what they don’t see happening.  In order to perceive new things, leaders must be willing to try innovations beyond current competencies!  Put another way, if it is comfortable it is probably not profitable!  You need to ask yourself:
·         Is my firm’s dedication to the core killing our ability to innovate?
·         How can I, as a leader, help discover new customer needs?
·         Do I have the courage to lead the investment in new capabilities to fulfill those needs?

Jimmy Wales, the founder of Wikipedia, got flack recently because he took special interest in a page about somone he was dating. The Wikipedia community will get over it, but the kerfuffle calls into question reputation, quality, and the very veracity of the site itself. This would be a salacious detail only of interest to The National Enquirer if it were not for the fact that Wikipedia is one of the top sites on Google, and is rapidly becoming the most cited reference source on the planet – in all languages.

It is not news that the world of user generated content is exploding – blogs, wikis, and the wisdom of crowds are all the rage. Yet, there are only some things for which the crowd is wise. One need only look at the current mortgage crisis to see that crowds can be very wrong in their judgment, and the great thing about the capital markets is that they keep score. Those who are truly wise make more money and get a bigger voice in the opinion market and in the capital market. Warren Buffet gets more votes because he is better at it than I am. The problem with Wikipedia, and blogs, and user generated content is that many of them don’t have a strong reputation management process. Put another way, any idiot can have an opinion. The most important thing is does the person who is giving an opinion have a good reputation? Is that reputation attached to his or her opinion? Does the person own the downside risk of the adverse effects of their opinion? On eBay, people who are lousy merchants bear the reputation risk. On Amazon, those who generate bad reviews are rated poorly and have less influence. Best yet, on stockpicker sites such as Motley Fool’s CAPS, individuals are rated by the number and quality of their picks over time. So, robust reputations evolve as a consequence of the recommendations of the individuals.

You need three elements to create a robust reputation management system:

1. a persistent identity, so that you are always you when you participate in an end user generated forum;

2. a rating mechanism to vet “high quality” and “low quality” opinions or predictions; and

3. a robust quality process to evaluate and adjudicate conflicts of aberrations.

This three-pronged approach is the essence of scientific inquiry. Experts review experts to see if there is new knowledge created. It is the reputation management mechanism that creates the quality. Almost all businesses are embracing – one way or another – user generated content, but few of them are doing a good job of implementing a reputation management system. Are you willing to live at the mercy of the mob, or do you want to take action to make sure that only true experts have influence when rating your product or service?

Like it or not, there are people talking about your company on the web right now. You must be aware of that conversation and engage it with authenticity. If not, your company will be another Target.Recently, Amy Jussel of the blog  ShapingYouth wrote that Target’s billboard in Times Square was offensive to women because the center of the logo in the giant ad pointed to a woman’s crotch. In response, the company said the model was “making a snow angel” on top of the Target bull’s-eye. After Ms. Jussel contacted Target to complain, the company not only did not answer her issue, but also said their policy was to not respond to non-traditional media. The online community was outraged, naturally, but not about the billboard, because many people disagreed with Ms. Jussel. The netizens were outraged over being dismissed by the company.

First, Donahoe has muffled the ability of sellers to rate buyers. At the same time, he has created volume discounts for his larger sellers while raising prices on the little guys. These are all typical moves for a bricks and mortar player: give discounts for volume and default to “the customer is always right” — even when he or she is a jerk. On top of that, he is pushing more fixed price product through the eBay Express site, giving less emphasis to bidding, and thus, undercutting eBay’s true distinguishing characteristic as the world’s dominant auction site.

There are new protests emerging by the thousands and even YouTube videos from disgruntled community activists. What Donahoe apparently misses in all these changes is that eBay is not a retailer, but rather a social organism that created a way to find latent demand and link it up to sources of supply. To that end, he should not be focusing on new modes of retailing as a means of growth but pursuing new ways to discover even more nascent forms of demand and even more innovative supply methods.

Here’s one idea: Do a deal with Fundable — a company that helps anyone collect money for anything — creating a new movie, buying airline tickets in bulk, or supporting a charitable cause. To understand how it works, consider the example of bulk airline tickets. A seller posts a “collection” on Fundable to raise, say, $5,000 to buy 20 round-trip tickets from New York to Fort Lauderdale at $250/each. The tickets are $300 when bought individually. The seller is tapping into latent demands that simply need funding to be realized. Funders are just buyers shifted in time – they “buy” before the supply exists.

For this retail form of fund raising, Fundable charges 7%. With Fundable in the fold, eBay could extend its vast audience’s desire to acquire well beyond what’s available through sellers — to pretty much anything they can think of. In essence, this will allow eBay to create new supply with the demand already baked in.

This is a natural extension of the original eBay business model – finding new sources of supply and demand and lowering the transaction and search costs that keep those buyers and suppliers apart. Fundable’s 7% would be great for eBay’s bottom line. Moreover, there are also enormous social benefits for eBay here as they would take Fundable’s powerful tool to raise money for charitable causes to an enormous new audience.

Would a deal with Fundable solve all of eBay’s growth challenges? No. But it’s the type of move I believe eBay should be making: extending its model of organic, social commerce to new markets — rather than sliding ever closer to the e-retail space dominated by Amazon.

(This post can also be seen at coversationstarter.hbsp.edu)

When we learned to drive many years ago, back in the age of rear wheel drive, we were both taught to “turn into the skid” because our natural instincts to turn away only made things worse. In a recession, business management’s reflexes suffer the same problem — at the very time executives should be carefully aiming their information technology (IT) to make their organizations more productive, they often cut indiscriminately . And that usually creates more costs and problems later.

IT makes up 7% of the operating expenses in the average firm and up to 18% of the cost base in information-intensive industries such as financial services. Given its size, IT must be considered for reduction; but the temptation to blindly cut must be resisted. Research by MIT’s Center for Information Research, as well as work done by Rubin Systems and Diamond Management, our companies, shows that businesses with well-targeted IT investments outperform their peers by 2-5% of gross profit. At the very time when profit is most dear, firms must keep their wits about them.

So what do you do?

Build bottom-up investment models of where IT is driving key levers in your business. These include customer service and sales support. In a downturn, investment in demand creation is key.

Understand your “IT cost of goods.” Many organizations don’t know how much IT is embedded in their products or services or what impact it has. Before cutting, understand the whole picture.

Be aware of the health of the IT organization. IT expense should remain a steady percentage of revenue. As IT is used to automate other parts of the business and lower total cost, IT itself should be increasing as a larger piece of a smaller overall expense budget.

Use the downturn to find the very best IT talent. For example, Wall Street is currently awash in great technology talent, and the very best IT talent is hard to find. Now is the time to find the team to take your organization to the next level.

That team will help you through the hard times. Sometimes, of course, cutting is unavoidable. In that case, you must have an IT team that can recommend to management what can be cut and what can’t be touched — in business terms, not just technology mumbo jumbo. You must be sure you are cutting the right things and investing in the right things.

What are you doing to make sure that the economic downturn doesn’t cripple your IT platform in ways that will limit your business’s future growth?

How have you protected the long term investments in IT?

(This post can also be found at http://conversationstarter.hbsp.com/2008/02/dont_cut_it_during_a_downturn.html)

All great strategy is a combination of the obvious and the subtle; of offensive boldness and defensive genius.  Steve Ballmer is making just such a move with his $44.6 billion tender for Yahoo!  This investment is not just about search and Google, it is about dominance of the entire digital lifestyle.   

What many pundits miss is that communication – email, instant messaging, and to a growing extent the mobile phone, are as important as search.  Email, after all, was the original killer app that launched the internet.  By combining Microsoft with Yahoo! they grow their email base (Yahoo! is the most popular web based email site, and combined with Microsoft’s Hotmail, they will be even bigger.)  They also get Yahoo!’s instant messenger – which is much more popular than Microsoft’s messaging client.   Google is weak in both email and instant messaging. Portals are vital as well, with Yahoo! being the leading portal, with MSN in third after AOL.  (I am in debt to http://pietersz.co.uk/ for a great analysis of the merger.)  A combination will yield a portal well larger than any other. 

That’s the offensive part – now to the defense.  Of course, it is a protective move against Google in search.  In addition, last September Yahoo! bought Zimbra (www.zimbra.com), a company with an excellent enterprise email package that could give Microsoft’s Outlook/Exchange combination a run for its money.  Moreover, Zimbra is more open and integrates well with other web applications from Flickr to Yahoo! Maps.  We know from the long history of commerce that open systems innovate and evolve faster than closed ones – and Zimbra was a pot