organization

Alley Insider has posted a memo that John Borthwick, co-founder of NYC-based investor/incubator Betaworks sent to his portfolio companies. There are many gems in it so I suggest you all click on that link and read it. But here are some of my favorites:

It's counterintuitive, but during an up cycle people accept conventional wisdom, and during a down cycle people challenge it. That's good. Very good. And the cycle will winnow competition.

And if you need to make cuts, make them now. Don't cut 10% now and then another 10% early next year -- make the change in one fell swoop. Piecemealing your way through change kills momentum, hurts culture and the team and is a chickenshit way to run a business.

There will be a flight to quality; this always happens. But this time I think it's going to be more than that.    For TV and print this has been an unusual year: The shift to online has been stemmed first by the Olympics and second by the election. But year-over-year  growth in ad spend has been down across the board (see slide 32 of the sequoia deck, linked below). Expect the next year to be ugly and different. I think spend will move online, very fast, and print may right downhill.  And people will look for ROI -- real measurable results. Monetizing social media is hard. Much to do here, much money/share to make/take.

Openness
I think this cycle is going to drive another significant shift in how open and interconnected the Web is. This is good news for you, and this is bad news for the Facebooks of the world, who tried to replicate the walled garden strategy of Web 1.0.

Think about what happened through the last cycle. Start with AWS. In the 1990s, Internet companies had to own everything top to tail. Today you can use Amazon and other services to pop up a new box for hundreds of dollars, if that. Thats a huge shift, and it's also a shift towards interdependency.

We are all now dependent on the Amazon's of the world for parts of our infrastructure. I think this turn of the cycle is going to drive a lot more openness.  This in turn ties to the market figuring out how to rapidly establish bottoms-up standards. This is about working with others and figuring out how to do things without having to do all the work. 

Thanks to John and Alley Insider for sharing this.

American Express is giving away $1.5mm to the winning project and $500k to the project that comes in second. This contest ends in less than 2 days. The number of projects still in the race is now five and Donors Choose is one of them and is currently in second. If you've been reading this blog, you know that Donors Choose is an amazing organization that allows us to give teaching materials directly to needy public school classrooms.

You have to be a member of American Express (which means you have a card) to vote. I just voted for Donors Choose. It took all of about two minutes, but I suggest you have your amex card handy when you do it.

If you want to see all five finalists, go here. This community has visited the Donors Choose Giving Page over 500 times in the past week and a half. If we can generate a similar amount of votes in the Members Project, it will likely make a big difference.

I've detected a bit of irritation, and even cynicism about the motives of Sequoia, Benchmark, Ron Conway, and others (including me perhaps) in the venture capital business who have been publicly and privately advising their portfolio companies and entrepreneurs everywhere to be cautious in light of the market meltdown and the potential for a long recession.

Kara Swisher titled her post last week "Irony Alert: Bubble-Making Venture Capitalists Start Popping Them" and started it off by saying:

Is it just me or does the sudden prospect of venture capitalists–the very investors who fueled the Web 2.0 valuation insanity with their typically egregious overfunding of start-ups–lecturing about the bleak economy and the need to tighten belts seem just a tad ironic?

Bernard Lunn from Read Write Web posted this comment on my blog a few days ago:

Fred, this is one of the rare times that I disagree with you. Cannot argue with Sequoia’s track record. Their advice is good. Of course companies should keep their costs as low as possible. That has been the obvious for centuries. So last week the advice was “spend like drunken sailors?”. Seriously, this kind of boom one day, gloom the next reminds me of the crazy behavior that got us into this mess. My beef is with this suddenly flurry of VC advice way late in the game of advising their portfolio companies that the economic cycle has turned bad. That was obvious a year ago. Two years ago it was probable. The VCs that I know knew that. Why the sudden flurry of advice after an obvious meltdown? Better than still being in denial I guess.
I know this is bad form, but we have been giving measured advice on the changes in the economic cycle on ReadWriteWeb for over a year now. Entrepreneurs/managers need time to execute these kind of changes, so a bit of thinking ahead of the curve is what they expect from their financial advisors.
Clever slides, great perspective, good data, good data but a year late IMHO.
Bernard

Even some other VCs are commenting on Sequoia's presentation. Alan Patricof is quoted in The Deal saying:

The comments made by the partners of Sequoia Capital at their recently held 'CEO Summit' have been widely covered by leaks to numerous bloggers. These bloggers have disseminated the details and spread the contagion of the sentiments to the public at large, unfortunately running the risk that the words become a self-fulfilling prophesy. Without challenging the comments, which expressed a heightened degree of doom and gloom for the economic prospects of young start-up companies particularly, I do think it calls for a somewhat more restrained response on the outlook and required action before throwing the baby out with the bath water.

Alan's comments are actually very good and I agree with almost everything he says. But I think everyone is shooting the messenger (ie Sequoia and to a lesser extent the other Silicon Valley VCs) who are raising the caution flag.

To Kara and others' assertions that it was Sequoia who fanned the flames of the bubble, I call bullshit. I was on a panel with Mike Moritz in the summer of 2007 and he said then:

Adam [Lashinsky] is asking Moritz about frothiness of venture valuations. Still true?

Moritz: Undoubtedly, he says. Best time to invest is when people are cowering under their desks. Everyone has the strut back in their walk; everyone is walking tall. Returns paltry for long time, but money keeps pouring into the area.

Here's the deal. Everyone, including Sequoia, Benchmark, Ron Conway, etc, are still planning on investing in startups. They've been at it a long time and know that VC is a cyclical business. In fact, Moritz understand that the best time to invest "is when people are cowering under their desks".

But we have a responsibility as investors, board members, fiduciaries, and advisors to our companies to tell them what we've seen before, that acting now decisively will make it easier to survive tough times.

This is not some coordinated cynical attempt by VCs to talk down valuations or put entrepreneurs on the defensive. We are not spreading the contagion of gloom and doom. It's all about acting responsibly and making sure we all survive to fight another day. Because in the end, survival is what darwinian capitalism is all about.

Taking the creative destruction out of capitalism is like taking the crucifixion out of Christianity

Seems such an appropriate comment in reference to my post Faust Banking and Trust

You took home almost half a billion dollars, whilst your company is bankrupt and our country is in crisis. And that's difficult to comprehend for a lot of people. I have a very basic question for you - is this fair? Asks the chairman to Lehman Brothers CEO, Richard Fuld

On Wednesday I was asked to give a keynote at the Portuguese Annual Advertising Conference. Their theme this year was Consumer Engagement.

I had great fun, and met some great people. And so thank you for everyone that came along and thank you to Manuela from APAN for inviting me.

This posting has really nothing to do with our main themes of Communities Dominate. But as Alan is as close as it is possible to being a Finn, I'm sure he joins me in feeling the pride that all Finns feel this day, as our previous President, Martti Ahtisaari, has just been awarded the Nobel Peace Prize. Please allow me a few words on this.

The Nobel Peace Prize is one of the most prestigious and perhaps, one of the most noble of prizes that society can award any of its members. The past winners reflect truly some of the greatness in recent mankind, both in personal character - consider Mother Teresa, or Desmund Tutu or Lech Walesa or Dr Martin Luther King Jr or the Dalai Lama - as well as heroic works towards achieving peace in what has often seemed unending conflict, such as Anwar Sadat and Menachem Begin in starting the peace process between long-warring Egypt and Israel; or Henry Kissinger and Le Duc Tho (who refused the award) for bringing the Vietnam war to an end; or Nelson Mandela and Willem de KIerk with South Africa; or John Hume and David Trimble with Northern Ireland.

There have been some who have won the Nobel Peace prize for achievemens of considerable humanitarian needs, where the Nobel Peace prize has seemed the most fair way to acknowledge exceptional contributions to mankind, while necessarily not actually "achieving peace" in any given conflict at that time, such as Al Gore for his work with the environment. And sometimes the Award has been given for organizations working to peaceful goals, such as Amnesty Interational or the UN peacekeeping forces etc. And there have been years when the Award has not been handed out at all.

While many of the winners have actually achieved a peaceful resolution in a given conflict, the winners in most cases were the political leaders on both sides of that conflict (such as Vietnam, South Africa, Israel-Egypt and Northern Ireland). These are worthy recepients, but there is rarely also an even more altruistic role and contribution to peace. That is the achievement of a peace envoy to a long-running military conflict, where the peace envoy comes from the outside. Not as a political ruler from either side.

That is what Martti Ahtisaari has done all throughout his long career in international diplomacy. Recalling that our country of Finland is in Northern Europe, bordering Russia, Sweden and Norway (and the Baltic Sea), ours is a peaceful country and has not had conflict on our borders since the second world war. Finnish troops serve on United Nations peace missions all over the globe, my cousin Jukka Lundgren served with the UN troops in Lebanon for example. We - like our Scandinavian cousins in Sweden, Norway, Denmark and Iceland - have been promoting peace quite actively all over the world.

But nobody from Finland has been anywhere near as dynamic as a peace activist, as Martti Ahtisaari. He has been personally delivering peace in Africa, in Namibia. In Asia, with the long running civil war between the Aceh and the government of Indonesia. And he's done it in Europe bringing peace to Kosovo.

Here is a man who already had been the President of Finland, who as President brought Finland into the European Union. He had his place secured in our history books and he could have retired to write memoirs and attend some conferences etc. But rather than that, Martti Ahtisaari set on a personal crusade to help bring peace all around the world. The United Nations considered him one of their best - if not "the" best peace negotiator sending him to the toughest trouble-spots.

If there ever was a stereotype of what was the ultimate "peace hero" for winning the Nobel Peace Prize, that could be imagined at the birth of the prize, Martti Ahtisaari embodies that persona. A true hero of peace. And a remarkably successful one at that as well.

Congratulations Martti Ahtisaari. All of Finland celebrates your leadership and example. Thank you.

“ My recommendation to all of you entrepreneurs out there is to get off the negative sentiment treadmill, step up, and lead. The people working for your company are likely confused, concerned, and overwhelmed with all the noise in the system. In the near term, building your business will likely be more challenging on a number of dimensions. So what - that’s the normal cycle of business. You don’t need to be a blind optimist and spout happy talk, but you do need to have a clear sense of purpose and goals for your company. Leadership 101. When I look back at the dotcom apocalypse that was 2000 - 2002, I realize some of the best companies I’ve ever been involved in were created during that time. In the midst of this, I remember the endless stream of “the Internet is over” and “the information technology business in now a mature business and there will never be innovation again.” Yeah - whatever. Get some exercise, take a shower, eat a good breakfast, and get out there and build a great business. —Brad Feld - OK Entrepreneurs, It's Time To Step Up

I've always felt that Sequoia was the best venture capital firm in the business and this slide show shows exactly why that is. It's chock full of data and charts and advice. Kudos to the team at Sequoia who put it together.

Back in May, This American Life aired a widely-acclaimed show on the mortgage crisis. In The Giant Pool of Money, Alex Blumberg and Adam Davidson pepper their analysis with dialogue from a cast of characters including:

Richard Campbell, ex-Marine, behind on his mortgage: “At one point, my son had $7,000 in a CD and I had to break it. That really hurt.”

Clarence Nathan, who got a $540K second mortgage while working 3 part time not very steady jobs: “I wouldn’t have loaned me the money. And nobody that I know would have loaned me the money. I know guys who are criminals who wouldn’t loan me that and they break your knee-caps.”

Glen Pizzolorusso, just out of college, making $1 million a year selling mortgages to people like Clarence Nathan: “These people didn’t have a pot to piss in. They can barely make a car payment and we’re giving them a 300, 400 thousand dollar house.”

It’s a powerful show. If you don’t have the time or inclination to listen, you can read the transcript.

Last Friday, Alex Blumberg and Adam Davidson returned with Another Frightening Show About the Economy. There’s no transcript yet, but I just listened while doing housework. It’s just as compelling, and also amazingly prescient. Here’s Adam Davidson from that 10/3 show:

We’ve surveyed a bunch of economists, and most say there’s another approach that’s clearly better. It’s called a stock injection plan. In the Paulson plan, we give 700 billion to the banks and get back these toxic, crappy assets. With the stock injection plan, we still give something like 700 billion dollars to the banks, but in return we get an ownership plan.

From the Planet Money blog, also on 10/3, referring to the TAL show:

That White House plan wasn’t the only plan. It wasn’t even necessarily the plan you think it is. In this podcast, Adam Davidson tells This American Life host Ira Glass about a mysterious phone call in which a tipster suggested that an alternate proposal had crept into the language of the reworked bill. Davidson says that it concerns so-called stock injection, and that economists like it — a lot.

And sure enough, we learned about that alternate plan today. I heard it on the news, and today’s Planet Money is a well-deserved “I told you so”:

That backdoor bailout we’ve been talking about came now front and center. U.S. Treasury Secretary Henry Paulson says the U.S. is prepared to use public money to buy up portions of private banks. Alternately called a stock injection and a capital one, the move would amount to at least a partial nationalization of the financial system.

Why wasn’t this the original plan? Because banks hate it, Davidson says, and they’re a powerful lobby. But, push has come to shove.

The 10/3 TAL show paints a brighter picture of this alternate plan, calling it simpler, fairer, more economically sound, and a better deal for the taxpayer. We’ll see how the market responds tomorrow. But here’s the line that stuck in my head:

Someone, and we still don’t know who, put in very subtle language into the Senate bill that gives this as an option to the Treasury Secretary.

Repeat: “Someone, and we still don’t know who.” Excuse me? The future of our economy depends on subtle language inserted into the bailout bill, we can’t point to who wrote it, or when, and reporters have to receive anonymous tips to learn about it?

I’ve written recently about a Congressional content management system. Micah Sifry makes the same point in an outstanding episode of Phil Windley’s Technometria podcast. The stakes are way too high for these shell games. We need a whole lot more transparency in the legislative as well as financial realms, and we need it now.

The Apple iPhone was big news a year ago and a recurring theme at this blog from long before it had a name, and related to the iPod vs musicphone debates we had here for two years before the iPhone was launched. The Apple fourth financial quarter of 2008 results are coming out on October 21 of 2008. It seems very likely that the 10 million annual sales level for the iPhone will be announced. I have no inside knowledge of these numbers, but I'm very confident that it is so. I want to give some background and analysis on what those numbers mean, and how they were achieved.

HISTORY

I gave my first opinion of the iPhone announcement only some minutes after it was announced, on 9 January of 2007, saying it was "welcome innovation fusion" to the industry, but warned the industry was not as easy as those of the PC and MP3 player markets; and also expressed my concerns about the lack of a separate keypad.

I followed that with an Open Letter to Apple, still on the 9th of January, warning them that the killer app for a modern smartphone "is not voice nor music" but that the only killer application for our industry currently is SMS text messaging, and that it was not well understood in America, at Apple's home market.

Then, one day later, on Oct 10, 2007, I wrote what many considered the best competitive analysis of the chances of the iPhone in the telecoms industry, in my major analysis entitled Handicapping the Race. I totally stand by that early analysis and made what I think turned out to be very valid early observations, such as "In Europe.. the lack of 3G will be a serious flaw.. by year end (2007) this phone will be almost obsolete in Europe by then." As it turned out to be; only the 3G iPhone would capture Europe's interest this past summer. The response to the original iPhone was quite muted in only a few European countries compared to what it achieved in America in the summer of 2007. I also praised Apple for its powerful marketing, brand loyalty, passionate customers and innovation. I also warned that the first generation (2G) iPhone was not perfect, and that it might well end up, that a later iPhone variant would be the real success, as I wrote one day after the iPhone was announced:

But Apple is not infallible. Sometimes its first step is not enough - remember the Lisa, the predecessor of the Macintosh PC? A great computer at the time, and revolutionary in some ways, but did not take the market by storm. Only the Mac did. Same for the Newton, a great and innovative early PDA but its timing was off and other PDA makers took over what Apple pioneered.

I also was quite correct in guessing how the first iPhone would be received worldwide, writing:

Expect the most glowing reviews and opinions from the American press; and the most critical reviews and opinions from the Northern Asian and Northern European press.

It turned out to be true. The American IT and telecoms press loved the first iPhone, the rest of the world was more mixed and even lukewarm in their reviews. Finally, as to Apple's stated aim of 10 million sales in the first full fiscal year of the iPhone ie Oct 2007 - Sept 2008 - this is what I wrote:

With the launch and aim of 10 million sales comes a certain corporate-wide commitment by Apple to make it happen. I would say they will do it. But it will come at a serious cost to profitability. Note that this expands Apple's portfolio and helps a PC maker move into the mobile internet - the future, so this is also a clever move by Macintosh, to gain a foothold into the mobile computer market of the next decade. Good move by Apple. A lot of worries by major handset makers. An exciting time for the industry. But I want to see a family of iPhones before the end of the year.

So with that, yes, right from the start, I said this phone could well hit 10 million sales. It would not be easy, and it would be costly. It would particularly hit the profitability of this product. I was certainly assuming one of the marketing cost impacts Apple had that it could use - which I mentioned in several comments - was to drop the price of the iPhone in 2008, to help boost sales if the 10 million was turning into a tough target. It was not Apple's only marketing option, naturally; you can boost sales also with advertising, sales support campaigns, new designs, etc. But yes, that the price was slashed to 199 dollars in 2008, tells the story, that yes, Apple had to take a huge cut in its profitability for this product, to be able to reach its stated goal.

I followed that long analysis posting with several more, including the "definitive" blog about the iPhone prior to its launch, that I released a week before the iPhone hit the market, in late June 2008. That article discussed the market strategies for the three main regions, America, Europe and Asia, in my lengthy and detailed posting entitled: Crunching the Numbers for the iPhone. At this point, over five months of analysis of the original 2G iPhone had been prepared by thousands of pundits around the world, but nobody really had used the real product. I ended that analysis with this comment about what I clearly felt would have to be the 3G iPhone in the summer of 2008:

The phone to fear, the ultimate superphone of its age, the one striking fear into the HQ's of Nokia, Motorola, Samsung, SonyEricsson and LG, is the first re-designed iPhone, after feedback from users in Europe and Asia. That truly re-designed "iPhone II", that may be released in the summer or autumn of 2008 at the earliest, that is the must-have smartphone. I can't wait to use that iPhone. This first iPhone is more like the Lisa for Apple PCs, an important step along the way, but the next iPhone is like the Macitosh, a true masterpiece.

(Emphasis was in the original posting.) And compared to the first and quite flawed 2G iPhone, the 3G iPhone is far better, yet still, surprisingly incomplete (as I've blogged many times). But yes, pretty good guesses and insights on the day the iPhone was announced, one day after it was announced, and a week before it was launched.. 

Now, I also promised I'd return to discuss the performance and whether this 10 million level would be reached. I am very confident, from many sources, that Apple was on target to hit and exceed that level of sales. I am very confident that on October 21, Apple will announce it has passed 10 million sales. And that will be greeted by Apple investors with a great sense of relief and satisfaction. And it is quite a great achievement, certainly. But we do need to then put this number in context and dig a bit deeper what it may mean for 2009.

10 MILLION IS ONLY 0.8 PERCENT OF MARKET

Yes. That number is right. If Apple sold 10 million iPhones in the past 12 months, it has captured zero point eight percent, 0.8% or four fifths of one percent, of the total mobile phone market worldwide. Understand that the Macintosh PC has been fighting in the 5% to 12% range of the PC market most of its life for the past twenty years or so. Now, the iPhone has not that. Nowhere even in the "same ballpark". There is a whole order of magnitude between those. The Macintosh series of PCs was a relevant player to the market with high single-digit market share. But the iPhone is totally irrelevant to the big picture of the mobile phone market. Not even one percent. A fraction of one percent. So while Apple celebrates 10 million sales (or whatever actual number it will be, 11 or 12 or even 15 million units), it is tiny. TINY. In the picture of mobile phones.

Please do not misunderstand me. I said from the start, that no matter how well or poorly the iPhone sells, it is an innovative product that will drastically alter the whole industry. The mere launch of the iPhone was a revolution to the industry. That has not changed. BUT the NUMBER of iPhones sold, at 10 million is totally irrelevant because of the size of the industry.

To put it in context, Nokia sells 10 million new phones every single week of the year. So yes, 10 million is a major milestone for a brand new phone-maker that has just entered the market; but it is still small potatoes. Very very very small potatoes.

Yet, the iPhone is not fighting for mass market phones. Its not fair to compare, say a Ferrari sales number to that of Volkswagen or Ford or Toyota. Ferrari is an exclusive premium sports car, in the luxury bracket. So too is the iPhone. It is what we in the industry call a "smartphone". So a far more relevant comparison is to see how it fared in that market.

HOW OF THE SMARTPHONE MARKET

The news is far better. The market size is smaller. Gartner says 190 million smartphones are sold this year 2008. So out of that, 10 million is obviously just over 5%. That is quite impressive indeed, and within this more tightly-defined market, the iPhone is nearing the performance of the Macintosh in the PC market. A far cry from the best that the iPod managed at its peak days in the music player market, but still certainly impressive.

But again, before we get overly excited, we do need to look a bit at the competition there. The American press tends to look at their home market and think that the natural rival of the iPhone is the Blackberry. That is not true. The Blackberry is at almost diametrically the opposite end in the smartphone field, geared at business executive users for their wireless email use that is a magnificent messaging phone; the iPhone is a multimedia and internet -optimised device, far more like the N-Series of Nokia.

But yes, lets look at smartphone market shares. I don't have the numbers for the third quarter of 2008 as of yet, but the second quarter of 2008 have been discussed by Gartner. During that quarter, RIM, ie Blackberry, outsold the iPhone at the rate of 5 to 1. And in the same period, the Nokia smartphones (mostly N-Series like the N-95 and N-82) outsold the iPhone at a rate of... get this.. 15 to 1.  Even in the smartphone market segment, that 10 million level does not get you far. And incidentially, this latest quarter for which we have numbers, worldwide, three other manufacturers sell more smartphones than Apple - they are HTC, Sharp and Fujitsu. Apple is not in the top 5 for smartphones even. For all the hype about the iPhone, how much coverage do these brands get? Did you even know there is a better-selling smartphone from Sharp or Fujitsu, than the iPhone? They do outsell the Apple worldwide...

Of course if we expand the market to look at featurephones, ie musicphones, etc, then we have the giants Samsung, LG and SonyEricsson (and Motorola) joining the game, and all having their "equivalent" models in similar price ranges and of similar specs, outselling the iPhone by factors from 5:1 to 10:1.

I do want to be very clear about this. Yes, 10 million is impressive, but Apple is a tiny spec in the sea of 1,500 models of mobile phones sold worldwide, and they have in the past 15 months taken now less than one percent of market share in the world.

ITS STILL VERY IMPRESSIVE FOR THE NOVICE PHONE MAKER

With all that negative "anti-Apple propaganda", lets then turn to the sunny side. Many said it was an aggressive and ambitious target. There were plenty of pundits in 2007 who said Apple would fail to reach 10 million in one year, especially considering how expensive the iPhone was.

Big giants of the industry were struggling, we've seen Motorola lose massively in the game over the past few years. So yes, going from zero to 10 million is very impressive. I then also want to point out this number. The big five makers - Nokia, Samsung, LG, Motorola and SonyEricsson - capture about 80% of the worldwide phone market. But there is a huge drop to the next "biggest" player who fight for that sixth largest supplier slot. And here it gets interesting.

We have to see the final numbers, as these fluctuate among a dozen players all selling in the 8 million to 25 million range, but Apple is very possibly in the top 10 of global handset makers (already). Bearing in mind, there are about 30 makers who are in that group, including HTC, RIM, Sharp and Fujitsu, but also such unfamiliar brands as Kyocera, Huawei, TT and ZTE. In this race, behind the big five giants, RIM is the sixth-largest handset maker in the world, and Apple is barely at the fringe of being in the Top 10. In the fourth Quarter of 2007 they were the tenth-largest maker, but fell out of the Top 10 in the first half of 2008. Now with the 3G iPhone and more aggressive pricing, its very likely that Apple is once again in the top 10.

THAT is a big achievement indeed, whether they are ranked 9th or 11th or 13th. It means that in their first year, Apple has fought ahead of about 25 handset makers in the world, and are certainly one of the makers to watch. And obviously they are growing their modest share, so expect this ranking to improve over the next year, as the iPhone 3G (and its successor phone sometime next year) will be available in far more markets than the original 2G iPhone.

HOW FAST TO TEN MILLION

Now, a contrast. Canadian Research in Motion (RIM) makes the Blackberry. They got into the phone business in 2001 and have grown a steady and fiercely loyal user base with wireless email on their iconic phones. In seven years, they have achieved a global subscriber base of 19 million who use both their phone and the Blackberry wireless email service (as of mid-2007, three quarters of that subscriber base was in North America). There is a difference between a "Blackberry subscriber" who uses the phone and their service, and the total user base of Blackberry phones. RIM sell more phones than only to that subscriber base; in fact in Europe the biggest Blackberry user base is teenagers and young adults who are addicted to SMS text messaging, and love the BB's keypad for texting, but who never even use the email function of the Blackberry. RIM reported that they sold 6 million handsets in the second quarter of 2008, so they sell about 24 million devices per year. This in seven years from launch.

Taiwan based HTC made PDAs and other electronic gadgets. It moved into the mobile phone space in 2002. It was the first phone maker to use Microsoft's Windows for Mobile operating system and has grown its market steadily in the smartphone space, and currently sells about 12 million phones per year. This level of sales achieved in six years.

12 million in six years, 24 million in seven years? But Apple does 10+ million in one year. Certainly achieving 10 million sales in one year is a considerable achievement.

AT EXPENSE OF PROFITABILITY

When Steve Jobs announced the aggressive 10 million sales target in 2007, I am certain it was made with a lot of analysis and understanding of the market, as well as Apple's internal strengths and abilities. I am also certain, that since Apple announced a strategy of an exclusive partner network programme, and attempted to pursue that in 2007, but abandoned that in 2008; there must have been a drastic change in facing the reality of the mobile telecoms market, compared to the assumptions made when the iPhone launch was still being planned and the original strategy made.

The original network deals included a revenue-sharing element - where Apple would gain a revenue-share out of the data traffic of iPhone users - something no other major handset maker has been able to achieve. This requirement by Apple was also its big hurdle in 2007, with many fruitful network negotiations crashing on this one Apple requirement. They had only a handful networks under contract at the end of 2007 with this arrangement.

Apple finally abandoned this requirement in 2008 and now have a vast range of countries where the iPhone will be sold; and indeed in many countries like Italy and Australia, there are several network operators who will offer the iPhone. It is no secret, that Apple has radically altered its strategy.

The original strategy did include the requirement of selling the iPhone at an "unsubsidised" cost of 499 or 599 dollars depending on the model. In all of its early markets, like the USA and the UK, the rival smartphones are all heavily subsidised. So rival phones, say like the Nokia N-95, in many markets sell for zero dollars (to qualified buyers willing to sign two year contracts). The argument was that since Apple would be gaining from the revenue-sharing, then the mobile operator partner would not be willing to subsidise the phone.

When Apple was willing to abandon the revenue-share requirement, then the mobile operators were also willing to handle the iPhone as they would other similar smartphones, and depending on the market, offer severe subsidies to iPhone buyers. (Note that in some countries subsidies are illegal, like in Italy; and in other markets the subsidies have been extinguished by all telecoms operators as harmful to the industry, such as in South Korea)

Nonetheless, the net result is that firstly, Apple was unable to secure the network deals to get any chance of 10 million unit sales with the original strategy. Part of that strategy, that was told to Apple investors, was that Apple would gain out of the revenue-sharing of the telecoms traffic. Note that in the big picture of the Trillion Dollar industry of mobile telecoms, 85% of the money is in telecoms traffic (voice calls, SMS text messages, and various wireless data services), and only 15% in the hardware (mobile phones, data cards, USB dongles etc). Even a small share of the far larger pie, could have been a remarkably lucrative benefit to Apple. Mobile telecoms as industry maintains EBITDA margins ("profitability") of 35%. The IT sector has profitability rates in bad times in the single digits and in good times barely in the teens. This was a major goal for Apple and now it seems clear, that this avenue for profit generation by the iPhone has been abandoned (the current contracts probably continue for a few years, so for example AT&T in the USA and O2 in the UK will probably continue to deliver some revenue-share to Apple until those contracts are renegotiated).

The other element is the lower payment to Apple per phone sold, obviously. So much like I predicted, Apple was able to achieve its goal of 10 million sales, but that goal would be achieved by cutting seriously into the profits of the iPhone.

Still, all in all, a great first year by Apple. It did truly shake up the industry. The iPhone has helped Apple move from a stagnant PC industry and a stalling MP3 player business, into the still strongly growing mobile phone industry. Now Apple is a legitimate and very desirable premium handset maker with a very strong brand. They have enormous potential and opportunity here.

WHERE NEXT?

I would hope someone at Apple HQ bothers to read my Open Letter and release an iPhone with a real (slider) keypad/keyboard; that would greatly enhance the phone. And for the next model, yes a better camera and adding the flash. But video recording has to be there now, out of the box; and the iPhone has to support MMS picture messaging - MMS is poised to become bigger by user base than total worldwide email users, near the end of this year or early next year. The iPhone is the only smartphone that is not compliant with the global standard for MMS picture messaging (shame!). These little improvements will make the next iPhone far better and it could start to aim to double its market share, and start to battle RIM for the position of the 6th largest handset maker if Apple really wanted to succeed in this space..

But now, the iPhone is an established model in the smartphone category. Now Apple has to conform to the industry game rules, and no matter how much they hate it, they have to start to increase their range of models, speed up the product introduction cycle - one new model per year will not get them from 10 million to 20 million. Look at RIM, they release a new Blackberry at least every quarter. Nokia releases a new phone model every week. And while its impressive to add fantastic features to the iPhone, the easiest way to add satisfaction and customer acceptance, is to remove the glaring deficiencies in the current model.. But Apple is hearing all that from all of their "real" customers (the network mobile telecoms operators/carriers, who buy the iPhones and sell to their subscribers ie end-users). They want to win. They will adjust. I wish they'd just do this sooner rather than later, so that we can get to the real advantages of Apple's innovation and leadership. Perhaps the next phone (next summer?) is finally the superphone that everybody truly loves...

(And for anyone who is interested in understanding the mobile market, I've got the primer for you. Send me an email to tomi (at) tomiahonen (dot) com, and I'll send you my 2-page Thought Piece crammed with stats and facts about the mobile telecoms industry)

Mark O’Neill dug up some ancient history in a recent blog post:

Is “WOA” really new? I urge everyone to read this Byte article from Jon Udell in 1996, 14 years ago. Part of the title says it all: Every website is a software component. A powerful capability for ad hoc distributed computing arises naturally from the architecture of the Web.

Actually it was only 12 years ago, but long enough so that I had to remind myself, today, of the lesson I learned back then. The full title of the column Mark refers to was: “I use AltaVista to build BYTE’s Metasearch application and realize that every Web site is a software component.” It was my first experience with client-side web scripting and lightweight service composition.

Fast forwarding to today, I was flipping between Google and Live Search and noticing that the answers I was looking for were distributed across the two sources. I’ve been doing that a lot lately, because the combination is really powerful. But for some reason, I hadn’t gotten around to automating a side-by-side search. And it’s gotten a whole lot easier than it used to be.

To see why metasearch is helpful, try this query two ways:

Google: search google live side-by-side

Live: search google live side-by-side

I found four relevant results spread, in non-overlapping pairs, across the two engines: TripleMe and SearchDub (via Google), and DualSearch and SearchBoth (via Live).

I tried the above query in all four, found DualSearch to be most useful, and made an DualSearch OpenSearch provider that you can use to add this side-by-side capability to the search box in FireFox, MSIE, or any other browser that can plug in OpenSearch providers.

Poking around some more, I came across FuzzFind and, although I don’t find it as useful as DualSearch, it does incorporate del.icio.us which is helpful for me. So I made a FuzzFind OpenSearch provider too.

Clearly I’m not the the first person to think of metasearch OpenSearch providers. Which other ones are you aware of? Which do you use most, and why? Feel free to tag your finds with metasearch, opensearch, and provider.

Bonus question: Why doesn’t every search engine offer its own browser-pluggable OpenSearch provider right on its home page?

Over the past week (eight plus days actually), I've been promoting this Donors Choose Giving Page on this blog and twitter. During that period, 26 people have given a total of $6055. We are basically on a path to raise about as much as last year when almost 100 people donated about $20,000 through the AVC giving page.

Given how much I've been promoting this contest, I started wondering how well my marketing efforts are converting.

I use bit.ly links for all my twitter posts so I can track them. The donors choose giving page has generated 422 clicks this month to date as follows:

So the posts I did on twitter using bit.ly generated a total of 422 clicks to the giving page.

I use mybloglog to track the outbound links on this blog and they tell me that there has been 145 clicks to donor's choose from this blog since Oct 1st.

So the posts I've written promoting the AVC Donors Choose Giving Page have produce a total of 567 clicks so far this month. And we've collectively made a total of 26 donations (I've made one and will certainly make more).

That's a 4.58% conversion rate. I think that's pretty good but I am not positive. I hope the e-commerce experts out there will know and weigh in via the comments and let us all know.

It would be really neat if I could put a tracking code on the Donors Choose Giving Page and share that tag with bit.ly and mybloglog and find out which channel converts better. My gut says this blog should convert better but I really have no data to proove that.

The big point is blogs and microblogs are good vehicles to drive e-commerce. We need better ways to track thesse channels.

• We've Got Some Tough Competition
• Donors Choose Bloggers Challenge Is Back!

My partner Albert calculated early last year that it takes about 1/10th the hardware, software, bandwidth, storage, and other expenses to build a web service compared to what it took in the 99/2000 time period. That was just as services like Amazon Web Services, Google AppEngine, 10Gen, and other "cloud computing" platforms emerged as real options. It's gotten even less expensive now. As Albert pointed out in his cloud computing talk at Web2NYC, the first 5mm page views on Google AppEngine are free. It doesn't get less expensive than free.

It's a lot less expensive to build, deploy, and scale a web service than it used to be. Open source software makes it less costly and easier to build an app. Tools like Get Satisfaction make it cheaper and easier to provide support for a web app. Blogging and Twittering makes it cheaper and easier to get the word out about your web app.

There's been plenty written about how all of this threatens the venture capital model. A two person team can go to Y Combinator, get a little bit of capital, work for three months, launch a web service, and be in business. It's not just Y Combinator, there's TechStars in Boulder, Seedcamp in London, and a bunch of other such programs.

I don't think this model threatens venture capital at all. I explained why in this post back in December 2006. We've embraced the "less expensive" model in a big way with investments like Delicious, Tumblr, Disqus (Y Combinator), Zemanta (SeedCamp), 10gen, Adaptive Blue, Etsy, Outside.in, and Pinch Media. That's about half of our current portfolio and in each case, our first investment was small, the team was small (less than 10), and the monthly burn was well below $100,000 per month. In some cases, the burn was (and still is) well below $50,000 per month.

On Tuesday we had our Union Square Ventures portfolio together for our annual portfolio summit. During that meeting I pointed out that a number of our portfolio companies have figured out how to build web services that reach 10mm to 20mm unique visitors per month with a total team of less than five people. Tumblr is probably the best example of this. David and Marco are still the only developers at Tumblr. They have a customer service person and several part time members of the team. Tumblr powered blogs reach about 20mm unique visitors per month. There are about 500,000 Tumblr users who collectively generate 150,000 new posts per day. Tumblr is a big web service with a tiny team. It is incredibly capital efficient.

My question to the rest of our portfolio was simple. What can the rest of you learn from this approach? How can you get more capital efficient? And I'll ask the same thing of all of you who read this blog. Can we harness this massive reduction in capital requirements to figure out how to survive and thrive in the coming downturn?

Om Malik reported yesterday on his blog that Sequoia brought it's portfolio together this week and gave them a talk about cutting costs and preparing for a downturn. Ron Conway sent an email to his portfolio suggesting to them that they cut expenses so that they can survive another three months. I've written recently with my advice, not just to our portfolio, but to everyone who reads this blog.

I received an email this week from the CEO of a company who I have known for a long time. He and his senior team made some adjustments this week. They let a few people go, closed all of their open hiring slots, cut off low ROI marketing programs, froze salaries, and made several other adjustments. All in all they cut between 5 and 10% of their annual operating expenses. And this is a profitable company that is growing and doing well. That's what good experienced managers do in times like this. That company will continue to grow, but they know growth will slow, the sales cycle will be longer, and they want to be sure that they will remain profitable.

Much has been written about how the "nuclear winter" of 2001-2003 led to many of the innovations we've been tapping into since. Clearly the capital efficiency revolution was fanned in the nuclear winter. When capital is scarce, smart people figure out how to do more with less. So first and foremost, let's all take advantage of this capital efficiency to get our costs down and build businesses with even more operating leverage. And hopefully there are new tricks out there that we can use to get even more capital efficient.

It's never pleasant to face the truth about darwinian capitalism. The bad companies die. But that harsh fact forces all of us who want to survive to evolve, adapt, and innovate. The time has come to leverage capital efficiency, not just to make it easy to do a startup, but to survive a downturn. Capital efficiency has found its moment and we must embrace and extend it.

In turbulent times it can help to focus on small steps and tangible signs of progress. In that spirit, here’s a fragment of the collaborative events calendar I’ve been trying to summon into existence:

A pretty good selection for a Saturday night in the Monadnock region! That’s good news for all of us living around here.

What’s especially encouraging, for me, is the process behind the scenes. That sequence of four closely-spaced events comes from four contributors who are publishing three different flavors of calendar feed, using Eventful, Google Calendar, and WordPress.

Best of all, only one of those contributors was me.

Tomi was interviewed recently by MobiAd

Key themes were

[1]  What does advertising look like on the mobile platform

[2] The need for Engagement Marketing vs. interruptive communications

[3] Co-created commercial communications

Tomi expands on this later theme...

However, my best example today, is the Japanese snack foods brand Tohato, and their engagement marketing concept. Yes, it was another advergame.

But what a game. Think of the addicted hard-core gamers on massively multiplayer fantasy wargames like World of Warcraft, Lineage 2 and Everquest, with literally millions of active gamers online. The multiplayer gaming activity is very compelling especially to young male adults - the kind of customer that the spicy snacks brand Tohato wanted to appeal to. So they launched the World’s Worst War campaign, as a mobile multiplayer online advergame.

Tohato launched two new extremely hot spiced snacks brands in Japan, Habanero and Satan Jorquia. Each package had a 2D barcode, and customers were invited to fight in the war by joining in the army for one or the other brand. And gamers who could recruit more gamers would be promoted in the army, so the game had a strong viral element.

The game ran for several months over 31 battlefields, and soon over 100,000 gamers were interacting daily in the game. The brand even provided a daily news service to report on the war - who had been promoted, who had died bravely etc. The game generated such passionate involvement that gamers would collect at social networking sites like Mixi and Facebook to plan their strategies for the upcoming battle.

The teacher is asking for a set of classic novels, including "The Adventures of Huckleberry Finn" by Mark Twain, one of my favorites. I can easily recall the thrill of reading Huck Finn for the first time. The cost is $518. It's a compelling case, and it's from a Bronx middle school; early in my career as a journalist, I spent a fair amount of time in Bronx public schools, including several in areas where most residents lived at or below the poverty line. Many of the kids are immigrants or the children of immigrants, and providing great American literature resonates strongly. So this donor chooses.

Tom Watson, Author of CauseWired

If you want to choose like Tom did, please visit this blog's Donors Choose giving page

My guest for this week’s Innovators podcast is Howard Bloom. He’s written several books, one of which — Global Brain: The Evolution of Mass Mind from the Big Bang to the 21st Century — is the main topic of our conversation.

There’s no easy way to summarize this show, but here are some notes that I took while reading the book, and used to guide the discussion:

global data sharing among bacteria

complex adaptive system

imitative learning

individual vs group selection

passion for gathering in cities

raven roosts are data collection centers

elements of a collective learning machine:

1. conformity enforcers (genome, social norms)
2. diversity generators (curiosity, deviance)
3. inner judges
4. resource shifters
5. intergroup tournaments

apoptosis / cell suicide

behavioral vs verbal memes

the group influences individual perception

each node in the collective brain represents a different approach available to the mesh of mind

individuals and subgroups are disposable rovers, sensors for an interlaced intelligence

pumphouse gang shows how individuals and groups can become test pilots for speculative strategies

team hunters, crop thieves, garbage raiders: each a separate “hypothesis”

collective intelligence uses the ground rules of a neural net: shuttling resources and influence to those who master problems, stripping influence, connection, and luxury from those who cannot seem to understand

If these themes resonate, you’ll love hearing Howard elaborate them.

Image by Getty Images via Daylife

The Treasury, the Fed, and Warren Buffet have been the only buyers in this meltdown and have been largely focused on financial companies. Meanwhile the rest of the market has gone down 30% year to date and very few, if any, stocks have been spared.

What do we look for next? Does the market just keep going down endlessly? What will bring this to an end? Clearly not government intervention. While possibly necessary (we'll see), the splurge has clearly not put an end to selling in the markets.

We need to see more Warren Buffets stepping up. And my bet is they will eventually. And they will be corporations buying back their own stock, large private equity and buyout firms doing going private transactions with all equity cap structures, and possibly foreign companies seeking bargain acquisitions in the US.

What's interesting, as Howard pointed out repeatedly on twitter yesterday, is that corporations have not yet stepped up to stock buybacks.

Microsoft announced last month that they plan to buy back $40bn in stock over the next five years. They have $25bn in cash and short term investments and are currently earning about $20bn per year in operating cash flow. Microsoft's stock is trading at about 11x operating cash flow.  It's market cap is $227bn and institutions own 60% of it, meaning there is about $130bn of $MSFT stock in the hands of institutions. If Microsoft wanted to, at the current price, it could purchase all $130bn of that stock from institutions with its current cash balance plus operating earnings over the next five years. If Microsoft is confident about its business prospects going forward, it should be an aggressive buyer of its own stock at these levels. And maybe it is. It's stock is only down 3% in the past month while the S&P has been down 15%.

What about Google? $GOOG is down almost 50% year to date and the company is valued at $115bn. Institutions own roughly 60% of its stock, roughly $70bn of it. Google is earning about $7bn of operating cash per year and has $13bn of cash and short term investments on hand. So it would take Google longer to buy back all the stock institutions own, more like eight to ten years. But still, that's a lot of purchasing power and the market is asking the same question Howard did yesterday.

The silence of $goog into this meltdown is just as deafening with all their cash.  I am not going to be run over.

In bad bear markets, like we are in, investors look to corporations to defend their stock and Google has not yet shown an interest in doing that. That's something to look for. When you net out Google's cash, it's trading at $100bn, a mere 12x operating cash flow. That's value territory.

Let's look at News Corp. Rupert Murdoch's company, the best managed media company out there, is down 56% in the past year and is now trading at a mere six times operating cash flow. News Corp is also about 60% institutionally owned. So that means Rupert could buy out his external investors with four years of his cash flow. But we have yet to see him do that.

I could go on and on. Apple is worth $67bn after you back out the $20bn of cash they have on hand. It earns over $5bn a year. That's another value stock right there.

And those are some of the best US companies right there. The list goes on and on. Starbucks trades at 7x cash flow, Walmart trades at 10x cash flow, AT&T trades at 4x cash flow, and Comcast trades at 6x cash flow.

You could buy all of America's best corporations for somewhere around eight to ten times cash flow. Someone is going to start doing this.

Maybe it will be the large private equity and buyout firms who have been stuck on the sidelines while the debt markets have been closed for the past year. If good companies get cheap enough, they can buy them with their cash, without debt, and own them for however long the markets take to work the issues out.

Or foreign companies will come in. I am particularly interested in the asian companies. Will a company like Dell be an attractive acquisition for an asian manufacturer flush with cash? It's only trading at 5x cash flow after you back out the cash on hand.

I read this history of the panic of 1873 yesterday after seeing a twitter post by Mary Hodder that referenced it. It's worth reading. There are two really interesting points in it. The first is that panic was precipitated in some measure by the US' emerging prowess as a player in the global economy and a lower cost one at that:

Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

But possibly even more interesting was who emerged as the winners of the panic of 1873:

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

We have yet to see the Carnegies, McCormicks, and Rockefellers of China, India, Russia, and the Middle East emerge as capitalists on a global scale. But with prime assets like I mentioned above on sale at bargain basement prices, it's just a matter of time until we will.

Eventually this market meltdown will be over and stability will return. But things will not be the same. There will be big winners and big losers. We have already seen many of the big losers emerge, but we have not yet seen the big winners emerge. I think we know where to look for them though.

I've been doing some of this thinking with my various workshops mostly in the mobile space. About how people go through a major change in life, and how that presents opportunities for new services, products, sales, and also of changes in loyalties.

I've often looked at it in the mobile space with eight relevant changes in our lives, starting with puberty, the first time we start to set our own path and preferences, rather than those of our parents, which also has big impacts for mobile phone choice and of operator (carrier) preferences etc.

So yesterday I happened to be talking about this with a colleague here in Hong Kong, and I was struck by the fact that while for mobile phone and service sales, yes the teenager youth puberty age break, at about age 15 is the first relevant change, there actually are still stages in our lives before that. We have a previous significant break at about age 6 or 7, when we learn to read. Roughly at that time we can become computer literate for example, able to Google etc. I recall Alan talking about his son Joseph and how Joseph before he could read and write, would ask his father to "write in the computer, dinosaur game" or "write in the computer, motocycle game" etc. Young Joseph did not know how to read or write yet, but loved videogames, and understood kind of instinctively, that Google existed, and if daddy wrote into (Google), then any videogame that young Joseph could imagine, would also be found (by Google)..  But yes, clearly there is a previous age break, around that time, maybe 6-7 years of age, when kids learn to read and write, and suddenly they can become literate in the digital world.

So. Rather than 8 age breaks relevant to mobile telecoms business, there is a previous one as well, so there are 9 age breaks (at least, perhaps even more) and thus we get 10 stages in life. Ha ! Gotta blog about that, eh?

So, here my thinking..  I do believe most brands, products, companies and services can find new opportunities for new customers, for selling new and different services, and find the risks of losing long-standing loyal customers, when the changes happen with these stages.

First stage is the young child. The baby, the toddler, the "rug-rat"..   The under 6 year olds who will accept almost whatever their loving parents give them and tend to be very content with that. Not really aware of a world far beyond the immediate family, and with not many friends and contacts and outside influences, beyond perhaps childrens TV programmes that they might watch together with the parents.

Second stage (and thus first change) is literacy. The approx 6-7 year old learns to read. And goes to school and discovers friends not selected by the parents or not out of the back yard of the home. New friends, new influences. Now things like brand competitiveness starts to emerge, I want Levis brand jeans, not the ones mother had suggested, etc..  But most importantly for readers of our blog, any digital media will not be powerfully (probably fully) able to be used. Yes, we have lots of videogames and basic computer programmes for even younger kids but after they learn to read, they can go Google and discover the digital world for themselves. If for some reason you don't have the PC and connection for them at home, soon they will find a best friend who has a PC and broadband in their room and suddenly spend a lot of time visiting that friend.

The third stage is puberty. From about age 15-16 maybe 14. Now kids rebel. They want to excert their own identity, they refuse to take their parents suggestions and ideas and services. Things that are "not my parents" choice are particularly appealing. A kind of MTV generation is here, the rebels. Experimentation with alcohol, sex, drugs. Possibly big shifts in the behaviour. The desire often develops to leave the home (soon, as in a few years)

We all go through these first three stages. The next six are all optional, some happen to most, some only for perhaps half the population.

The fourth stage is leaving the home, and I like to say this is the "going to university stage" even though it may be going to serve in the military, or it may be really just leaving home to set up an apartment elsewhere, or moving in to live with the girl friend/boy friend etc. This stage is the first time the person has to take care of himself/herself. It means no curfews, can party all night, get as drunk as they want, etc. If its the university option (as in moving to another town and living on a college campus) it can be very "free" with very few limitations and still strong support from home; and at the other extreme is the military option, which is very restricted with lots of rules and probably much more tightly controlled than the last year or two at home. Nonetheless the person goes through a radical change again. What is typical of this stage, is that the young adult is not very well off in terms of money and disposable income. (Note some people never leave home, and eventually take over the family house or farm or business etc)

The fifth stage is the first job. Note this can happen simultaneously with the above, but can also happen years after the previous, ie if the person goes to college and then graduates four years later and gets a first job. The first job is when we feel like millionaires. The first paycheck, it seems to last forever, we go on major spending sprees and still find lots of money left over in the bank. How soon that changes..  But yes, this is a major opportunity for spending and for new experiences.

The sixth stage is marriage. This won't obviously happen to everyone, and it may happen sequentially, ie many times. But the first change from single status to married status is the relevant change. I'd argue in many cases the commitment to move together and live together as partners is also equivalent to the married stage. It means that some of the late night partying is diminished, the family unit starts to plan for common household investments, the couch, the new bed, etc.

The seventh stage is the first child. It sometimes again happens without the marriage/living together stage, but often follows after that, and obviously not all families have children. But yes, the first baby into the family changes it drastically. Now the needs of the child come first. Priorities are totally changed.

The eighth stage is not desired, but happens to more than half of marriages and obviously to the far majority of all cases of partners living together; it is divorce (or break-up). The previous happily married parent turns into a single adult, and returns to the singles-scene. A different style of dating and partying lifestyle happens here and all kinds of lifestyle needs, from new fashionable clothes to fitness etc are suddenly an interest.

Note that the second marriage and second divorce and third marriage etc cycle can repeat many times. But these would produce generally a similar change in behaviour, ie the change from single to first marriage, would be far more similar to the change from second single to second marriage; than say the change in puberty or first job etc.

The ninth stage is grandparent. Not all get to this stage, and obviously you have to have had at least one child to be able to get there, but many older people do get there and it again changes priorities. At this stage the person is also old enough to mostly have paid off mortgages and car loans etc, perhaps retired or nearing retirement, and thus well-to-do in terms of disposable income. And suddenly the delight of grandchildren to give new and different meaning to life. And a particular need to connect with that age. I often point out that grandparent age people usually learn to send SMS text messages and MMS picture messages, not by messaging with each other, but rather by first connecting with their grandkids.

Ok, and the last stage is retirement. We all get there (obviously unless we die before that) so its the fourth stage that we all necessarily go through before death. At retirement we also have lots of time and often good disposable income as well. But now things like personal health matters are ever more important.

So there, ten stages. Not everyone goes through all ten. Not everyone goes through them in the same order. And some may be repeated several times. But these ten are rather universal and give good foundation for understanding how we face situations that force us to change our behaviour. And for clever brands out there, in particular those involved in the digital space, these ten can give chances to differentiate. If you can help your customer over the change, you should have a happy loyal customer for the next stage..

Give us your thoughts, this is a works-in-progress kind of thing. Like I said, I had used it in my mobile workshops only as 8 changes rather than 10 stages, so part of this is still very draft and new to me as well.

I've been doing some of this thinking with my various workshops mostly in the mobile space. About how people go through a major change in life, and how that presents opportunities for new services, products, sales, and also of changes in loyalties.

I've often looked at it in the mobile space with eight relevant changes in our lives, starting with puberty, the first time we start to set our own path and preferences, rather than those of our parents, which also has big impacts for mobile phone choice and of operator (carrier) preferences etc.

So yesterday I happened to be talking about this with a colleague here in Hong Kong, and I was struck by the fact that while for mobile phone and service sales, yes the teenager youth puberty age break, at about age 15 is the first relevant change, there actually are still stages in our lives before that. We have a previous significant break at about age 6 or 7, when we learn to read. Roughly at that time we can become computer literate for example, able to Google etc. I recall Alan talking about his son Joseph and how Joseph before he could read and write, would ask his father to "write in the computer, dinosaur game" or "write in the computer, motocycle game" etc. Young Joseph did not know how to read or write yet, but loved videogames, and understood kind of instinctively, that Google existed, and if daddy wrote into (Google), then any videogame that young Joseph could imagine, would also be found (by Google)..  But yes, clearly there is a previous age break, around that time, maybe 6-7 years of age, when kids learn to read and write, and suddenly they can become literate in the digital world.

So. Rather than 8 age breaks relevant to mobile telecoms business, there is a previous one as well, so there are 9 age breaks (at least, perhaps even more) and thus we get 10 stages in life. Ha ! Gotta blog about that, eh?

So, here my thinking..  I do believe most brands, products, companies and services can find new opportunities for new customers, for selling new and different services, and find the risks of losing long-standing loyal customers, when the changes happen with these stages.

First stage is the young child. The baby, the toddler, the "rug-rat"..   The under 6 year olds who will accept almost whatever their loving parents give them and tend to be very content with that. Not really aware of a world far beyond the immediate family, and with not many friends and contacts and outside influences, beyond perhaps childrens TV programmes that they might watch together with the parents.

Second stage (and thus first change) is literacy. The approx 6-7 year old learns to read. And goes to school and discovers friends not selected by the parents or not out of the back yard of the home. New friends, new influences. Now things like brand competitiveness starts to emerge, I want Levis brand jeans, not the ones mother had suggested, etc..  But most importantly for readers of our blog, any digital media will not be powerfully (probably fully) able to be used. Yes, we have lots of videogames and basic computer programmes for even younger kids but after they learn to read, they can go Google and discover the digital world for themselves. If for some reason you don't have the PC and connection for them at home, soon they will find a best friend who has a PC and broadband in their room and suddenly spend a lot of time visiting that friend.

The third stage is puberty. From about age 15-16 maybe 14. Now kids rebel. They want to excert their own identity, they refuse to take their parents suggestions and ideas and services. Things that are "not my parents" choice are particularly appealing. A kind of MTV generation is here, the rebels. Experimentation with alcohol, sex, drugs. Possibly big shifts in the behaviour. The desire often develops to leave the home (soon, as in a few years)

We all go through these first three stages. The next six are all optional, some happen to most, some only for perhaps half the population.

The fourth stage is leaving the home, and I like to say this is the "going to university stage" even though it may be going to serve in the military, or it may be really just leaving home to set up an apartment elsewhere, or moving in to live with the girl friend/boy friend etc. This stage is the first time the person has to take care of himself/herself. It means no curfews, can party all night, get as drunk as they want, etc. If its the university option (as in moving to another town and living on a college campus) it can be very "free" with very few limitations and still strong support from home; and at the other extreme is the military option, which is very restricted with lots of rules and probably much more tightly controlled than the last year or two at home. Nonetheless the person goes through a radical change again. What is typical of this stage, is that the young adult is not very well off in terms of money and disposable income. (Note some people never leave home, and eventually take over the family house or farm or business etc)

The fifth stage is the first job. Note this can happen simultaneously with the above, but can also happen years after the previous, ie if the person goes to college and then graduates four years later and gets a first job. The first job is when we feel like millionaires. The first paycheck, it seems to last forever, we go on major spending sprees and still find lots of money left over in the bank. How soon that changes..  But yes, this is a major opportunity for spending and for new experiences.

The sixth stage is marriage. This won't obviously happen to everyone, and it may happen sequentially, ie many times. But the first change from single status to married status is the relevant change. I'd argue in many cases the commitment to move together and live together as partners is also equivalent to the married stage. It means that some of the late night partying is diminished, the family unit starts to plan for common household investments, the couch, the new bed, etc.

The seventh stage is the first child. It sometimes again happens without the marriage/living together stage, but often follows after that, and obviously not all families have children. But yes, the first baby into the family changes it drastically. Now the needs of the child come first. Priorities are totally changed.

The eighth stage is not desired, but happens to more than half of marriages and obviously to the far majority of all cases of partners living together; it is divorce (or break-up). The previous happily married parent turns into a single adult, and returns to the singles-scene. A different style of dating and partying lifestyle happens here and all kinds of lifestyle needs, from new fashionable clothes to fitness etc are suddenly an interest.

Note that the second marriage and second divorce and third marriage etc cycle can repeat many times. But these would produce generally a similar change in behaviour, ie the change from single to first marriage, would be far more similar to the change from second single to second marriage; than say the change in puberty or first job etc.

The ninth stage is grandparent. Not all get to this stage, and obviously you have to have had at least one child to be able to get there, but many older people do get there and it again changes priorities. At this stage the person is also old enough to mostly have paid off mortgages and car loans etc, perhaps retired or nearing retirement, and thus well-to-do in terms of disposable income. And suddenly the delight of grandchildren to give new and different meaning to life. And a particular need to connect with that age. I often point out that grandparent age people usually learn to send SMS text messages and MMS picture messages, not by messaging with each other, but rather by first connecting with their grandkids.

Ok, and the last stage is retirement. We all get there (obviously unless we die before that) so its the fourth stage that we all necessarily go through before death. At retirement we also have lots of time and often good disposable income as well. But now things like personal health matters are ever more important.

So there, ten stages. Not everyone goes through all ten. Not everyone goes through them in the same order. And some may be repeated several times. But these ten are rather universal and give good foundation for understanding how we face situations that force us to change our behaviour. And for clever brands out there, in particular those involved in the digital space, these ten can give chances to differentiate. If you can help your customer over the change, you should have a happy loyal customer for the next stage..

Give us your thoughts, this is a works-in-progress kind of thing. Like I said, I had used it in my mobile workshops only as 8 changes rather than 10 stages, so part of this is still very draft and new to me as well.