Selling Yourself

An effective sales person typically proposes a value-based price, whilst an effective buyer typically tries to elicit a cost-based price. So I’ve always found it odd that whenever highly paid people are challenged about their high salaries in the media, they almost always respond with a cost-based justification, i.e. “I work really hard”. It’s especially odd since it’s almost always a ludicrous justification; assuming the average person in the UK works 7.5 hours a day and earns £30k, a purely cost-based justification can’t be valid for anyone earning over £96k.

So why do people do this? I assume it’s because most people’s mental model of “work” is that you sell your time for money. But this just isn’t true. Everyone transforms several inputs (one of which is time) into valuable outputs; and it is these that companies or consumers are buying. People are generally uncomfortable thinking (let alone talking) about this since if you follow this through it could imply that some people are more valuable than others; and that’s just impolite! But strictly in terms of contribution towards “the economy” (i.e. GDP) it’s true.

But if you stop worrying about the politeness and the judgement, it would be much better for everyone if we shifted our mental model of “work” this way. The discussion with the highly paid person wouldn’t focus on some pointless (and normally unsubstantiated) analysis of their working hours, it would focus on the value of what they produce, and that would be a much more interesting discussion. Someone who earns a high salary by creating valuable products that people want to buy, and creating jobs, may actually be excused for being rewarded for this. Whereas someone who earns a high salary by exploiting a brief imbalance in exchange rates would find it more difficult. So we might end up having adult discussions about how we align people’s personal motivations with what benefits the commuity, rather than having a childish discussion based on jealousy.

It also highlights that a person may be able to improve their value, and in fact that a community can improve their aggregate value, by changing their inputs or how they transform these inputs into value; rather than simply assuming that to be more valuable one must work longer. So it’s great news!

Of course, my argument is rather let down by the fact that I’m publlishing this blog for free. So either the value of this blog is zero (in which case you should ignore it), or I’m a bad sales person (in which case you should ignore it). Bugger.

Attracting Mobile Application Developers

Google’s “Open Source Engineering Manager” Chris DiBona was recently defending his employer’s rather dismal open-source efforts on its supposedly open-source mobile operating system Android. He admitted that they should do better, but for the moment Google is totally focused on gaining market share to attract application developers, and isn’t too concerned with building an open-source community. He re-enforced several times that Google’s strategy for attracting mobile application developers was “market share and device volume”.

Although I appreciate the way Google keeps their strategies simple, this one struck me as misleadingly simple, so I decided to write-up what I believe the key success factors for attracting mobile developers.

1. Maximise revenue opportunity
   1. Device sales
   2. Low fragmentation
   3. Effective sales channel
   4. Consumer demand
2. Maximise competitive attractiveness
   1. Market share
   2. Unique features
3. Reduce product development and maintenance costs
   1. Low fragmentation
   2. Development tools, documentation, support
   3. Skills supply (i.e. lots of people who can develop for the platform)
4. Awareness and perception of all the above factors

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Looking historically across smartphones:

• Symbian/Nokia focussed primarily on (3) and (2) (and did reasonably well at them). They were extremely poor at both (1) and (4).
• Apple completely nailed (1) and (4) and did enough on (2) and (3). The rest of the industry is now benefiting from Apple’s efforts on (1.4) and (4); we really needed a company with real consumer marketing competence.
• JavaME did OK at (3), but poorly on the rest in general. Some network operators did quite well for the time on (1) (e.g. NTT DoCoMo and Verizon) and had some successes.
• Microsoft did their usual excellent effort on (3); but focused on the enterprise, for some reason hoping that their PC strategy would work 15 years later in another market, so they failed on (1), (2), and (4).

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Looking now at Android — they’re doing mediocre on (1.3), (1.4), (3.2), and (3.3); they’re probably exceeding on (4); and they’re not doing so well on (1.1), (1.2), (2), or (3.1). Given this, focussing on device volumes and market share is probably the best objective, but they need to be worrying alot more about fragmentation, and at some point they’ll need to do a lot better on sales channel.

Innovation and Open Source

Over the past 5 years the word ‘innovation‘ has been used rather liberally within the software industry. The more liberally it is used, the more meaningless it becomes, and so is used even more liberally as some sort of pointless undefined synonym of ‘good’.

The LiMo Foundation recently published a very interesting paper on the economics of using open source components in mobile device product development; ‘interesting’ primarily because it presents data to support its case which is unfortunately rare. One question the paper asks is whether engaging with open source provides access to software innovation. I found it extremely difficult to consider and evaluate what they had written because after all these years I (much like the rest of the software industry) have no real concrete understanding of what innovation really means. So I thought it was time to get myself a definition and consider this question; and of course write it here.

An “innovation” is a feature of your product that is new, unique, and significant. I’d say that once a feature has been adopted by several competing products it is no longer an innovation (which is why innovation is such a difficult form of competitive advantage).

So can engaging with open source provide you (directly) with innovation? Quite simply the answer must be no. A significant feature in an open source component will be adopted by several companies and therefore will never be unique. More formally, the value of the innovation can be appropriated equally by all companies using the open source component and therefore cannot provide a significant advantage to any. Note that the open source component itself may contain innovation compared to its competitors (e.g. Symbian OS could contain a feature that Linux cannot readily duplicate), but this is a different matter.

But let’s think about this in a more negative way! Let’s say that any feature present in 2 or more competing products is a “hygiene” feature. In this case any feature added to an open source component that is used by multiple companies in a single market is immediately a “hygiene” factor. Now consider the situation that a company (A) doesn’t engage with an open source component but two of its competitors (B and C) do. Whilst the open source component will never provide B or C with an “innovation” advantage over the other, it is very likely that A will suffer a hygiene disadvantage compared to B and C as new features are added to the open source component.

So whilst companies cannot acquire innovation through using open source components, they certainly run the risk of falling beneath the hygiene bar if they don’t engage.

I believe that this more defensive way of thinking correlates better with the way we see companies approaching open source components in general (and definitely mobile platforms specifically). Companies optimise for not falling behind their competitors rather than trying to achieve some competitive advantage. In more academic terms, the open source game as I’ve described it has a Nash equilibrium where ever all competitors are using the same component. An interesting result of this behaviour is that in such environments only one open source component can survive in any market which is actually quite non-conducive to innovation.

A final question to consider. Does engaging with an open source project, rather than simply free loading, enable a company to appropriate the value of the open source component faster and/or more effectively than others?

Price Points, iPhone, and Android

Gartner recently published a paper predicting the operating system market share within the smartphone segment in 2012. Symbian has about 40%, Android 14%, and iPhone 13.7%. As you’d expect, and as Gartner hoped, this has generated a myriad of articles and blog posts from Android and iPhone fans arguing about whether Android really will overtake the iPhone. Whilst you’d expect the majority of these articles to be the usual pathetic “[Apple/Google] are the most awesome and will rule the world”, I’ve been surprised that no-one seems to have highlighted the reasonably obvious price-point factor. So I thought I would.

There are approximately 1 billion mobile phones sold every year. As with any retail market these products are sold at a variety of price points. The iPhone price point addresses somewhere between 100 and 200 million of these devices (in 2012). But Android devices can, and are already, targeted at a far wider range of price points. I’d estimate that Android price points will address roughly 300-400 million of these devices (in 2012) and should be counted as “smartphones”.

So arguing whether Android or iPhone is better seems as irrelevant as arguing whether Toyota or BMW is better. In both cases the former covers a far wider set of price points and market segments and so should sell more units.

Building a Developer Community

Now is the age of developer programs or “developer communities” as they like to style themselves. Five years ago there was barely a handful of such programs in existence. Microsoft led the way for platform vendors, and if you add Java, IBM, Adobe, and Apple to the mix you’re close to the complete list. Now there are literally hundreds of developer programs; from Paypal to Vodafone hundreds of technology companies offer a developer program.

All these developer programs are created for the same reason:

• More developers –> more applications for the platform
• More applications –> more consumer adoption

This is the formula that gave MS Windows such success in the mid-90s and Apple’s iPhone in the past couple of years.

But as all these companies scramble to build a developer community I see a general misunderstanding of the key success factors; leading to most companies focusing their efforts ineffectively. So I wanted to write-up my view of the key success factors for building a “developer program”. Note that I’m talking here about developer programs offered by platform vendors to the developers creating software around their platforms. In particular I’m not talking about open source projects and their contributor developer communities which is a different kettle of fish entirely.

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Developer Community

Before describing the key success factors, it’s useful to demystify the term “developer community” as it applies to software platforms:

1. Primarily it is simply the set of developers creating software for the platform.
2. A more genuine ‘community’ exists when these developers support and inspire each other to great better software.

Regardless of what you think “developer community” should mean, 99% of the time this term is used by software platforms, it means (1). They like to imply it means (2), but it doesn’t. Very few platforms have genuine communities.

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Key Factors

I believe that the key factors for building a successful developer program (in order) are:

(1) Awesome platform. You need a platform that lets developers do things that they can’t do anywhere else. The first platform that enables developers to do really effective Augmented Reality applications will benefit greatly from this.

(2) Channel to users. A simple, low barrier, channel to a large number of users.

(3) Support. The support offering has now been almost standardised with SDK, IDE, example code, reference library, guides, FAQs, and support forums being the main elements.

(4) Promotion. Tell developers about your technology, what they can do with it, and how to access it.

(5) Collaboration infrastructure. Provide infrastructure to encourage and help developers to interact on-line and off-line; discussion forums, events, ideagoras, etc.

Note that while list is primarily focused on application developers; it essentially holds for OEM-style developer programs too.

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Comments

MS showed us how to do developer support properly, Apple showed us how to provide a channel to users properly (at least in the mobile world), and the social networking craze has given some reasonably good hints on collaboration infrastructure. So most companies seem to get these bits (or at least get that they don’t get them but really should).

But very few companies seem to understand that everything else is meaningless and will come to nothing if there isn’t an awesome platform underneath everything. The channel won’t succeed if there isn’t great unique content. Promotion will become despised if it’s empty. Collaboration simply won’t happen if there’s nothing interesting to talk about.

Why does this happen? Typically companies create a “developer marketing” team to create a “developer community”. This team almost never has any real influence on product requirements. They are a downstream team that take what they are given and do what they can. If they are mainly technical guys then they will focus on providing good support and maybe some on-line collaboration. If they are mainly marketing guys then they’ll focus on channel to users, promotion, and trying to build a social networking website.

Whilst a little subtle, there is a pervasive difference in how you work when creating a product vs creating a platform. This makes it a difficult change and like all change it is generally done badly.

Sony Ericsson and Motorola

Sony Ericsson and Motorola have both been in the  “struggling” camp for some time. From my posting below on Palm’s cash flow, I’ve received a few questions about these two companies and wanted to post up some quick thoughts.

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Data

The table below shows data extracted from SEMC’s Q2 results and Motorola’s Q2 10-K form.

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Sony Ericsson

• With respect to my previous post, the first thing to notice is that SEMC and Moto (ailing as they are) are still in a different league than Palm. Palm had $68M of sales in Q2 while SEMC had $2.4B (based on today’s exchange rate).
• SEMC have a lot of cash, more assets, and healthy equity. So basically – nothing is forcing them out of the market. And given that they’ve just appointed a new CEO, I assume that the parent and other investors will give him a chance.
• The most striking thing for me about SEMC’s results is the jump from €200M gross profit down to -€213M net profit. Any CEO is going to see that and look for where the operating costs are being wasted. That’s going to bring SEMC’s broad platform strategy deeply into question (Symbian, OSE, WiMo, and Android).
• My guess is that after the usual 3 months the new CEO will announce a strategy that reduces the number of platforms by at least one, maybe two, and cuts the rather excessive traditional SEMC marketing budget. If SEMC traded separately this would push the share price up for a few months. Then success depends on execution of the strategy and actually producing some good phones.

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Motorola

• Motorola made a profit! I almost fell off my chair. In Q1 they lost about $180M.  In H1 2008 they lost $190M. Basically I can’t remember talking about Motorola making a profit. Obviously $26M is hardly a massive profit when you have $25B in assets, but it’s very positive news for Moto.
• Unfortunately they haven’t reported Q2 cash flow, so I can’t see if there are any games going on here. They report an H1 2009 cash flow of -$183M. When you consider that they made a net loss of $180M in Q1 then it’s looking like the numbers might indeed be adding up.
• I’d say that the new SEMC CEO will be looking closely at what Sanjay’s done at Moto and might just copy a bit.

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Palm’s Cash Flow

I’ve never quite understood how Palm’s business plan adds up. Fortunately they released their latest quarterly results (June – August) with the SEC just a few days ago (September 17th) so I decided to seek enlightenment. I didn’t find it. But I did note a few interesting about cash flow that I thought I’d write up.

• Palm made a net loss of $164M in the quarter. I would like to mention that I was surprised at how little this was reported in the industry news. When you compare it to the extremely negative reporting of Nokia’s results you can’t help but feel that the silicon-valley-club conspiracy theories have some justification.
• Palm’s actual net cash flow was -$42M; i.e. although on paper Palm lost $164M, their bank account only shows a loss of $42M. This is primarily due to Palm deferring a majority of Pre revenue and costs ($114M net).
• Palm have $110M in cash and another $100M in short term investments.
• So at the current burn-rate that gives them 5 quarters.
• Palm currently have a current asset to liability ratio of 0.56. They have a total asset to liability ratio of 0.5. They are running a shareholder equity deficit of $740M; i.e. if you sold all Palm’s assets you’d still need another $740M to cover its debts. And if you consider that $166M of Palm’s assets is in “Goodwill” which is quite difficult to turn into cash it makes the picture look a little more grim. So I can’t see too many people lining up to offer Palm a loan or sensible investors buying up a new rights issue. The key point is – I don’t see where Palm is going to get more cash from.

I can’t see big things happening for Palm in Sept – Nov. Then there’s Pixi and Christmas. February to April is quiet. Another potential release in May for the summer market. Then a slow ride into November 2010.

So as far as I can tell Palm’s current business plan is only viable if it turns a good profit over Christmas with Pixie (let’s say $100M retained earnings net profit) and then backs it up again in May. Any deviation from that and I don’t get how Palm can keep going and what fool’s money is keeping it going. A failure over Christmas will inevitably lead to the usual uninformed conjecture about “Dell should buy Palm”, “HP should buy Palm”, etc; but Palm’s liabilities could easily run into $1B. And what do you get for that? Not enough. I’m sure that everything will play out in complete contradiction of everything I think and have said here, and that’s mainly why I’ve written it, so that this time next year I can read this posting and admire the wonderful logical-defying world that is the technology industry.

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22/09/09. I thought I’d update this posting with Palm’s share price over the next year to see how things develop. At the time of writing (22/09/09) the share price is $15.95 (up 14% today).

24/09/09. It looks like I’ll be tested on “I can’t see too many people lining up to … buy up a new rights issue”. Palm are preparing a new rights issue. 20M shares at $16.25 each; i.e. $325M. It’ll be interesting to see what happens.

24/09/09. Palm’s shares hit a long-time high of $18.10 today and then fell back to $16.94. Apparently this is based on a rumour that Nokia will buy Palm. It’s not out of the question (stranger things have happened), but it seems like a bad deal to me. Spending $4B to acquire $1B of debt, an operating system you don’t want and is too hard to merge, and a difficult brand situation. Everyone talks about “US presence” which is certainly a problem for Nokia; but I think they could do a lot better for $4B. Asa  random thought – for that they could give away 20M phones for free! That would make for a nice deal with Verizon, AT&T, or Sprint and get Nokia devices into US hands. Anyway – lots going on with Palm.

28/10/09. Palm’s share price is at $12.59 today. They’ve been steadily decreasing over the last few weeks. That Pixi launch better be very very good or my prediction runs a serious risk of becoming correct and I will likely become intolerably smug.

 

Social Networks

No topic seems as shrouded in misconception, vapidity, and hyperbole as “Social Networking”. Whilst a certain latitude must be allowed given the rapid change in the online social networking world, there is one misconception that seems rather fundamental, is rather pervasive, and essentially annoys me sufficiently that I decided to rant write about it.

Facebook, Twitter, Orkut, MySpace, Bebo, etc — are not social networks.

‘Social networks’ are networks of people communicating. A talks to B who talks to C. When you describe a social network you talk about the individuals involved and what they talk about (e.g. Wii games, modeling of neurologlial communication, mobile computing, or AJAX programming). You probably would include how the network communicates, but that’s more a practical matter rather than a defining feature of the network.

If Facebook and Twitter are not social networks, what are they? They are tools to support social networks. Fantastic tools. Tools that have led to an enormous growth in the number of networks, the number of individuals involved, and the volume of communication within those networks. They are an essential part of the social networking landscape, but they themselves are not networks. They help individuals manage their networks, they facilitate simple broadcast multi-media (in the literal sense) communication, and they typically provide tools to expand network membership.

Why does this distinction matter? Well… for people who simply like to use these tools to engage in different social networks, then it doesn’t.

But for people analysing social networks from an industry perspective, planning marketing campaigns using social networks, and especially those writing articles about social networks, it would seem rather important. A few examples:

• This distinction is what underlies the success of “social network aggregation” software. The fact that users have networks of people and communicate with them using several different tools makes this aggregation attractive. If Facebook and Twitter were actual distinct social networks then aggregation would be of marginal benefit if any.
• This distinction is the key factor behind the current obsession with “owning” the address book. Most major operators and mobile platform vendors are spending serious money in an attempt to “own” your address book since that is really what defines your network; everything else is simply a communication channel. Note that I think much of the current thinking around address book ownership is flawed as everyone thinks about why it would be great for their company rather than how users will approach the problem, but that’s a longer discussion for another day.
• A marketing campaign that targets “being on Facebook” is half-baked. It needs to go further and look for the relevant social networks on Facebook and get involved in those conversations. A marketing campaign needs to understand its audience, know what the active networks are, and then join those networks.
• If you are providing tools to a social network, rather than being a social network, it entirely changes how you think about your own service. Looking at the major social networking website it becomes clear quite quickly who understands this and who doesn’t.

How much is a tooth worth?

Yesterday my eldest nephew lost his first tooth and placed my sister in a quandary —  how much should the tooth fairy pay for the tooth? For those of you from continental Europe, the tooth fairly is the equivalent of the tooth mouse for people who dislike the notion of rodents stealing into their children’s bedrooms late at night (even if they do leave money). Regardless of the species of the purchaser I felt sure that economic theory would provide a conclusive solution to my sister’s predicament.

1) Labor Theory of Value
The labor theory of value (LTV) asserts that the value of a commodity is related to the labour needed to produce the commodity and the costs of any materials (where the cost is itself based on the LTV). So using the information below we can assertain the correct value of the tooth:

• Teeth are made primarily of hydroxyapatite. All other materials are in sufficiently small volumes to be ignored.
• The average baby tooth is 0.5 grams.
• The current market rate for hydroxyapatite (in small quantities) is about 12c a gram.
• Now my nephew is 7, but it’s difficult to claim that he has spent 100% of his energy on growing this tooth. I think a generous estimate is to suggest that he’s spent cumulatively 1 day working on this tooth during his life.
• For some reason I’ve had difficulty finding average salary figures for 7 years old in the western world, but fortunately there seem to be no such problems in much of southern Asia. From these I understand that $3 is a fairly reasonable daily rate.

So based on this I would value the tooth at $3.06 (USD).
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(2) Marginal Utility Theory of Value
Of course, although the great Adam Smith was a proponent, the LTV is clearly complete nonsense. Interestingly it is also a key foundation of Marxist economics. The western world today mostly uses the marginal utility theory of value which roughly states that a commodity is worth the benefit it would provide to someone. “Marginal” means that it’s not the value of free roaming teeth in general, it’s the individual value that this increase in supply of 1 tooth will bring to a consumer.

Clearly the value on this basis is $0.
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(3) Market Value
But hold that thought! This is the modern world of financial markets, where commodities are not sold based on their actual marginal utility, but according to the most erroneously high perception of marginal value. Now a quick survey of parents I know shows that 0% of them know how many teeth a child has. So it is entirely plausible that a child could fake the losing of a tooth. Clearly this lays the foundation for a free market in the trade of “lost” teeth.

A brief survey of the Internet shows that the highest price paid for teeth (by enough people to support an active market) is $5 (USD). So the market value of the tooth is $5.

Conclusion
So once again, what seemed like a rather random decision, is actually a fundamental question of your economic beliefs. Furthermore, if you decide that theory (2) is the only conscionable choice, and therefore a value of $0, one is faced with the daunting philosophical question of whether the very notion of using economics to deal with 7 year olds is valid. I leave this as an exercise to the parent.

Personal Development

Question

A few weeks ago I achieved a rather worthy record — I ate a burger for lunch every day. Wonderful! Whilst eating Wednesday’s burger I was enjoying the company of the ever insightful Bruce Carney when he intrigued me with the following comment:

“Why does personal development always focus on weaknesses? Surely it should focus primarily on developing someone’s strengths instead. This would benefit both the organisation and the individual more; it would certainly be more motivating than constantly focussing on weaknesses.”

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Business Strategy

This exact question is an on-going debate at the business strategy level. The resource based approach to corporate and business strategy says that a company should:

1. Determine the distinctive capability of your organisation.
2. Find markets in which this distinctive capability gives you a competitive advantage.
3. Deploy your resources in these markets.

In contrast, wish driven strategy says that a company should:

1. Define the markets it wishes to be successful in.
2. Build the competencies required to achieve this objective.

Proponents of the resource based approach assert that wish driven companies have no genuine distinctive capability since a competency that can be built at will cannot be distinctive, and so such strategies are far more likely to fail than those based on the resource approach. Empirical data seems to agree with this assertion. Proponents of the wish driven approach ask where these distinctive capabilities come from in the first place. They say that without wish driven (or vision driven) companies no new distinctive capabilities would be created and innovation would suffer. Empirical data seems to agree with this assertion also.

My own current conclusion from this contrast is:

• A resource based strategy is far more likely to be successful; but requires an existing distinctive capability.
• A resource based strategy is probably the only sensible approach in a mature market.
• A wish driven strategy is very risky both in the short-term and in terms of long-term sustainability; but it can be successful in an unstable market environment against competitors who also don’t have a distinctive capability.
• As always, the key is for companies to really understand what they are doing, and be sure that it is the correct approach.

Interestingly, regardless of the strategy approach, companies tend to only address capability gaps when it is absolutely unavoidable; and the preferred method of filling such gaps (especially for functional capabilities) is the acquisition of a company or the recruitment of new employees. So given that companies behave this way at the business planning level it seems odd that they take a seemingly contraditory approach at the individual level.

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Application to Personal Development

I believe that almost all personal development follows a wish driven approach. Individuals define a set of career aspirations based purely on wish, a set of capability gaps are then identified, and development actions put in place. I would argue that a more resource based approach would be hugely beneficial; though a certain amount of wish driven development should remain especially for younger people.

This would look like the following:

1. Analysis:
   1. Define the person’s distinctive capabilities. This should include functional and behavioural competencies.
   2. Define the person’s core weaknesses; i.e. capabilities for which they are unlikely to ever be competitive.
   3. Determine a set of roles congruent with these capabilities and weaknesses.
   4. Define a set of career aspirations.
   5. Iterate the steps above to bring them as closely aligned as reality (for the capabilities) and desire (for the aspirations) allow.
2. Objective setting:
   1. Create objectives to develop the distinctive capabilities relevant to the final aspirations.
   2. Create objectives to develop missing capabilities that are not core weaknesses.
   3. Create causal career development objectives.

Actual personal development then follows the normal pattern of regular formal reviews to keep the objectives top-of-mind, constant ad-hoc feedback and coaching, and execution on the specific task-oriented objectives.

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‘Real World’ Test

One reason I like this approach is that it explains several real-world situations that the purely wish driven approach can’t explain.

Most importantly, almost no-one I talk to has a traditional Michael Heseltine-style career plan, yet many have successful careers. The majority of them, however, can tell you what their core strengths are and pro-actively develop these skills. They also analyse new opportunities in terms of how they exploit and would develop these core strengths. In other words, most people I know seem to sub-conciously take a resource based approach to their career development, and this approach seems to work.

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Request for Comments

I’d be extremely interested in anyone’s views on personal development. It’s an area of organisational theory and management that I’ve never been very satisfied with, since I haven’t seen many examples of it being particularly effective, and I’d love this thread to shed some light on it.