Overnight Successes Never Are

I was recently in front of the television (a rare occurance) watching a documentary on Pixar’s humble origins and its jaw dropping string of successes since its inception.  To casual observers, it seems like the studio came out of nowhere to redefine their market. The reality is quite different – they’ve been working at it since the 1980s. I was struck by something Steve Jobs said about Pixar’s rise to fame, which I’ve paraphrased in this blog post’s title. He should know – it took him a quarter century to build his legacy. The same will be required to developing our national energy strategy, and Jobs’ turn of phrase also brought back to mind President Bush’s stated goals for a rapid switch to E85 ethanol. His statement during the 2006 State of the Union address: ” to make this new kind of ethanol practical and competitive within six years.”

Let’s dissect current energy consumption and extrapolate what it would take to switch to E85 ethanol using some back-of-napkin type math. The U.S. consumes 388.6 million gallons of gasoline per day for transportation, according to Energy Information Administration. Since 1 bushel of corn can produce 2.5 gallons of ethanol, the U.S. would need 132 million bushels of corn per day, or 48 billion bushels per year, to produce sufficient quantities of ethanol to displace 85% of petrol use. Compare that figure to U.S Department of Agriculture projections that U.S. corn production is expected to be 11.715 billion for the 2008/2009 period. This is before we adjust for a growing economy and thus increased demand for fuel. In other words, it isn’t going to happen. The theoretical maximum we are able to produce is about two thirds of what we’ll need, and that’s before we actually consider the fact that we have to use corn for trivial uses like say, food.

Which brings me to what I really want to talk about in this blog post: Brazil.

Brazil’s policymakers understood all too well during the 1973 oil shocks that they need to be ready for the next shock. They also understood that apparent “overnight successes” are actually the culmination of many years of hard work, as Steve Jobs notes. After 30 years and billions of dollars worth of incentives, the country is now beginning to execute on a plan which will lead to the complete energy independence. In 2003, Flex Fuel Vehicles (FFVs) were introduced which can run on 100% ethanol or gasoline or a combination of both fuels. The result of careful planning and methodical progressis starting to create critical mass in the retail market. Figures from Brazil’s National Petroleum Agency (ANP) for September showed national gasoline prices at an average of Brazilian reais (R) 2.49/liter ($5.20/gal). That compares with R1.33/liter for ethanol in the same month, according to the ANP. In states such as Sao Paulo, the country’s ethanol powerhouse, the biofuel in September was available at an average of R1.09/liter versus R2.37 for a liter of gasoline. It simply doesn’t make sense for retail customers to purchase imported energy any longer.

Now I’m not advocating we try to import our way out of the fossil fuels trap by swapping Brazil for the gulf states, nor are the Brazillians interested in obliging. From the New York Times..

“We are not interested in becoming the Saudi Arabia of ethanol,” said Eduardo Carvalho, director of the National Sugarcane Agro-Industry Union, a producer’s group. “It’s not our strategy because it doesn’t produce results. As a large producer and user, I need to have other big buyers and sellers in the international market if ethanol is to become a commodity, which is our real goal.”

Ideally, we would develop an efficient mass transit system which would displace our current automobile culture, but let’s be realistic – Americans love wide open spaces as much as we love our cars. Instead of hoping for an idealistic solution or a silver bullet, I’m instead hoping we can hold the next President and congress accountable for the kind of long term planning we’re seeing south of the border. One other thing is clear from the Brazillian example; even if we move decisively, any shift to national energy independence is going to take some time, and we should be prepared to ride out the short term.

Ok, that’s the end of my rant.. I hope it was thought provoking!

Why AT&T’s IPhone 3G Launch Failed.

Like everyone else who is afflicted with gadget fever, I rushed out to buy an iPhone 3G on the friday release date. I spoke with an apple store friend and was told there were plenty of phones in stock, but I took a brief swing around a nearby AT&T wireless store on my way to the Apple store. While fulling expecting the AT&T store to be out of stock, it doesn’t hurt to ask of course. My 2 minutes spent with the AT&T sales rep left me absolutely flummoxed.

Apple Store in Palo Alto, CA

(photo courtesy of Elliot Ng)

A little context first, as there’s something to be learned from this. You’ve no doubt looked up at the header and noticed “Sales 2.0″ at the top there. It’s not just a cute phrase. To me, Sales 2.0 is sales and business development as it exists today in a world of network effects. For those new to this, Web 2.0 is all about network effects: when you upload a picture to Flickr, you’re not only creating a value by sharing pictures with your friends, you’re indirectly creating value (network value) for Flickr, whose repository of pictures and associated metadata (tags) is now larger (and thus more valuable). The full story of how Tim O’Reilly and others started this is beyond the scope of this post and even this blog, but you can read all about it if you like.

The point here is that in a network effects world, crowdsourcing becomes your primary sales lead generator. This is just common sense – most people making a big ticket purchase scour the web to take the collective temperature of existing owners.I’d go so far as to say that if you work for a sales VP who believes in buying lists and cold calling, then you need to find a new job.

So when blogger Chris Pirillo tells anyone reading that he feels stupid for trusting AT&T wireless sales reps, the network effects immediately and permanently act against AT&T’s sales success. Which brings me back to why I was flummoxed when I spoke to the AT&T wireless sales troglodyte yesterday. Here’s an impressionistic transcript of my exchange with an AT&T sales troglodyte:

Me: “Hi, I’m here for the same reason everyone else is.. are you out of stock?”

Troglodyte: “Yes we are…”

Me: “Ok thanks, bye.”

Troglodyte: “Wait! By now every store in town is likely sold out completely. We’re are already taking orders for the remaining shipments, and we’ll reserve those for folks who sign up. If you don’t sign up, I’m afraid it may be a month or more before you get one, as even the manufacturers are depleted at this point. Trust me, there’s no faster way to go.”

Me (incredulously): “Umm.. I’ll go to the Apple store, thanks.”

This is laughably transparent self-interest on his part, and has generated sales-stalling network effects for AT&T. Sure enough I picked up a phone from the Apple store, who had plenty in stock. So guess where I’m taking my wife when she’s ready to switch to an iPhone?

Now I submit this is what should have happened:

Me: “Hi, I’m here for the same reason everyone else is.. are you out of stock?”

AT&T guy: “Yes we are…”

Me: “Ok thanks, bye.”

AT&T guy: “By the way, you might get lucky with the Apple store up the road. Check with them or with Apple’s availability website if you’d like.  Their lines may be long, however. If you would prefer to not wait in line for hours, I’ll personally order one for you and get it to you instead as soon as possible. Here’s my number in case you strike out over there.”

Now granted Apple probably sent AT&T smaller shipments, and their running out couldn’t have been avoided. However, the point here is not availability but relationship management. Had AT&T sales management trained its staff to be sensitive to the network effects of linked customers, the result would have been trust gained, possibly a relationship developed. They’re not dealing with isolated consumers here. They’re dealing with a smart mob.

Are you listening AT&T?

CLEARly Uneccessary

If you haven’t heard about Clear, it is a fast-pass program designed for frequent flyers to get them through airport security in an expedited manner. In exchange for your $99 US, you get online signed up, background checked, retina scanned, fingerprinted, and issued a spiffy id card including a geek-fabulous microchip.

That spiffy card gets you what I’d call an airport valet, who verifies your identity, then discreetly whisks you away to the metal detectors with no waiting. As the Clear website “How it Works” section describes it, “.. members still proceed through metal detectors and x-ray machines” but adds “when you approach the lane, our attendants will help you with the bins and to get ready to go through the checkpoint. This alone helps our lane speed by as much as 30%!” Blogger Anil Dash signed up for the service and posts his experience here. It’s a good description first person account, although he’s missing the biggest problem with all of this. I’m not talking about the obvious privacy issues, nor the fact that nothing screams elitist asshole more than paying for airport line jumping.

Here’s the real question: How does this increase security? Answer: it doesn’t, and you’d be hardpressed to believe otherwise unless you’re shooting dopamine. Let’s step back to 9/11 a moment – would Mohammed Atta and his merry men have batted an eyelash about retina scans and such? Why would invasion of privacy matter to guy who is about to die? Furthermore, I’m not sold on the recurring security checks either – we’ve seen suposedly normal people turn radicalized before, and it’s unlikely Clear will help Homeland Security catch this any faster than the present. If the opposite turns out to be true then Homeland Security is a useless middleman, and need to be abolished.

You might be wondering why Homeland Security would buy into this awkward situation. If you’re not, I’m going to tell you anyway. Flying Clear get you the nightclub velvet rope experience, but more importantly allows you to subsidize a function that Homeland Security is supposed to cover (using your tax dollars I might add). It’s a nice chunk of change if Clear CEO Steve Brill’s claim that 30-50% of weekday flyers will be registered by 2009 comes to fruition. What’s even better for Homeland Sec. is bypassing the endless CSPAN privacy deliberations sure to come if they have the TSA handle it. It’s much easier to let the private sector run with it, which bypasses this silly democratic process stuff.

Update 06.23.2009: It appears CLEAR has gone bust. The website now displays the following message:

Clear Lanes Are No Longer Available.

At 11:00 p.m. PST on June 22, 2009, Clear will cease operations. Clear’s parent company, Verified Identity Pass, Inc. has been unable to negotiate an agreement with its senior creditor to continue operations.

Sales 101: How Not to Win Customers

If you’re a sales professional, or you’re the CEO of your own tech startup (i.e. a defacto sales professional), you’ll need to learn how to rally clients to your offering and turn them into long term fans. Most of the methods employed by sales and marketing wunderkinds stem from one basic idea. Simply put, you figure out what clients want, and then position your product or service around that. In other words, your job is to to focus on what they want if you want them to care enough to listen to you. There are some great books which will show you what to do, but also learning what not to do is also constructive beyond the schadenfreude value (I’m full of German references today). One of the best examples of what not to do comes to us from recording label fan boy extraordinaire Jermaine Dupree. His pedantic rant here on the Huffington Post is worth dissecting and learning from. On the surface, it is a blog post defending musician Jay-Z’s decision to withhold track singles and sell only full albums on iTunes. In reality, it is DuPree’s attempt to justify his own profits off a dying old media model while disguising it as a plea for artists and consumers. It’s also an awesome example of unintentional comedy.

Here are two particularly funny excerpts along with takeaways we can all draw from them.

“Jay[Z] made everyone realize that iTunes taking what we give them and doing what they want with it isn’t the way it has to be. He put the light on and made other people realize, “Oh these guys are just selling our music, they ain’t making it.” If anything, WE made iTunes.

Let’s put aside the poor grammar for a moment – the clincher is the last sentence. What makes iTunes a success is not Dupree and his apostles, but rather the customers. Music buyers are increasingly choosing digital music over CDs and the Wall St Journal reports the statistics bear the trend out. The retailers get it -they’re quietly reducing floor space allotted to music. Hence artists like Jay-Z will be completing for ever-shrinking floorspace while David Bowie and Trent Reznor who embrace the web will increase their visibility where it counts. The takeaway: Losing customer-centric focus will turn you into an anachronism, leaving you struggling for a bigger slice of a shrinking pie to grow your revenues.

“But Universal sells one out of every three records. All it’ll take is for Warner Music to say, “You know what, I’m with you,” for us to shut ‘em down. No more iPods! They won’t have nothin’ to play on their players! We can take back the power if we’re willing to sacrifice some sales to make our point.”

DuPree’s shockingly bad understanding of how ipods work is not the showstopper here, nor is his grade school logic. What’s hilarious is that he obliviously advocates violating U.S. Antitrust laws. His statements are even more puzzling in light of lawsuits filed against recording labels in both California and New York for price fixing. Besides, as a customer, I derive zero value from the music labels holding back choices. It makes me more risk averse, so I still may not buy the album, and now I won’t buy the single either. The takeaway: Mitigating competition by offering a better product is an amazingly effective way to maximize profits. Mitigating competition by colluding to limit their choices is an amazingly effective way to maximize class action lawsuits.

DuPree’s defense of his seizing the majority of profits from a record sale is a funny indication of the old media’s disdain for customers, and a good cautionary tale for sales and marketing professionals. Is it any wonder music consumers (particularly younger ones) and even artists are largely ambivalent about sharing music files?