For the Week of December 1, 2003

As the Web has been spun, as Internet commerce has boomed and busted, whole industries have emerged, from under the radar. In my new job with Progressive Strategies I am sometimes called upon to look under the hood of these niches.

It can be fascinating work. After a decade watching the organic ecosystems of Internet niches, companies living, growing and dying like colonies of bacteria, watching software can be like examining the movement of tectonic plates. But the same principles hold true. You need to know your customer, grow with your customer, decide who your customer is, and leave no customer behind.

This is harder to do than it sounds. Developers cost money, and support must scale with the sophistication of the customer. As a result, tools that are essentially the same may exist in completely separate worlds, based on customer targets, while mid-range suppliers will create a number of different "editions," sometimes at radically different price points, and may end up serving no one well.

Take diagramming, for instance. It can be either a mass market tool or a vertical market tool. I didn't know I was buying a diagrammer last year when my daughter needed help organizing reports, but I was - it was called Inspiration . It's not sold as a diagrammer, however. It's sold as an education tool, for mind-mapping (and it's good for that). The Clue: marketing can define software, rather than technology.

SmartDraw , first written as shareware in 1995, defines itself as a mass-market diagramming tool. It bills itself as an "easy to use" product for "creating business charts and diagrams." You can still try it free, and the highest-priced version costs under $200. The "add-in packs" seem almost like afterthoughts, and while you can use them professionally, a large firm might feel silly doing that. To know what they're getting, to become dependent on the software for "enterprise" use, they need to spend more.

There is a hard, strange truth I have learned as a consultant. The check they write does not define the value you give. In part it defines the value received, the attention paid to what you say. I can tell Bill Gates just what to do, free, but he won't do it. On the other hand, if Bill Gates writes me a check for $1 million I could tell him the same things, only he might actually do them. The $1 million means nothing to my idea. The $1 million moves the customer to make it real.

Another way of defining value is in term of commitment, your commitment. In the case of software money pays for commitment. The customer commits to depend on your software and, in exchange, you commit resources to the needs of your customer.

You can see this easily in iGrafx , now part of Corel, but originally developed by Micrografx. The iGrafx tools are, at their base, just like SmartDraw - they're diagrammers. But the base tool, FlowCharter, starts at a street price of $329. And the pitch is quite different - it's a "business process management" package. By investing in links with high-end engineering, you get iGrafx Process 2003, and iGrafx Process for Six Sigma 2003.

It's still diagramming, but it's diagramming with a different purpose, different results, different customers, a different level of commitment, and a different - much higher - price. The iGrafx tools are sold by dedicated account managers, looking to rope five-figure, six-figure, and seven-figure accounts. They're won because iGrafx circuit diagrams can be turned into real circuits, because iGrafx process diagrams describe real factories. These are business "enterprise" tools - put the name "enterprise" on a software license and we're talking mega-bucks. But we're also talking about a mega-commitment from the developer, to earn that trust and be ready to earn it again at any time.

Microsoft got into this new market a few years ago, buying Visio. And it has tried to manage Visio the way it does its other Office applications. Gradually, Visio has been adapted to inter-operate with Office products, and to have their look-and-feel. The result is something whose pricing and capabilities are much like those of ConceptDraw , another general-purpose diagramming program which has both PC and Macintosh versions.

The problem with the Visio approach is that the pricing is too high for absolute victory in the mass-market, and too low for a niche market. So the pricing is all over the place, $179 up to a professional version selling at $499. (There's no server or network version yet.) Microsoft is expecting its Independent Software Vendors (ISVs) and enterprise customers to do the work of customization for it, but these aren't the 1980s, and Microsoft isn't Linux.

Given time Visio could well "grow up" and give iGrafx a run for its money, while Corel's financial weakness almost guarantees it will be unable to respond. All the while, of course, Visio has to fight off SmartDraw on the low-end - it can't live at those prices with its overhead.

So what should it do? If it were up to me (and it's not) I'd get to work on the server and network versions and fish for those big accounts. I'd grab reference accounts in specific verticals that could help develop those vertical-market tools needed to take share from iGrafx, even if some of those sales ran at a loss, with revenue shares on the tools that barely broke even in the first years, with incentives for those accounts to sell the rest of their industries.

Most of all, I would be patient. Not everything runs at Internet speed. Not every market runs on Internet Time.

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Shameless Self-Promotion

My last book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards .

You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know. Remember: it's journalism that keeps the Clues coming...

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Shameless Promotion

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Takes on the News

Going Across (and Getting Back)

They say porn has gone mainstream because "actors" are sometimes seen on regular TV (fully clothed). But this is not yet true for the people who do the business. It's true that publishers may feature the occassional naked lady, and even CBS can produce journalism about the industry, but once a businessperson crosses over to true porn, even part-time, they're as marked as their "talent." Even Christie Hefner is considered a "porn merchant," even though her father's magazine (Playboy) is fairly tame (by the standards of the industry) and over 50 years old.

So, what Nick Denton is trying with Fleshbot deserves watching, not so much for the site (snarky commentary with links to sex sites) as for what happens next. Nick is Blogdom's number-one entrepreneur. His Gawker and Gizmodo are defining for-profit blog publishing.

But Nick, despite great PR success, is still trying to make ends meet. He has just three employees, the people running his blogs, and so the questions must be asked. Does his move into porn mean there's really no money in blogging? And, will Denton ever be seen in the same way as a publisher, now that he has (at least for now) crossed the street?

On second thought, of course, there is one way he could get back to the other side, by getting religion. But the area of religion he would have to come in through has a reputation that, in its way, is not much better than porn. It's like going through a black hole to the other side of the galaxy. It still leaves you no closer to a guest spot on "Regis & Kelly."

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Astroturf Grows Up

Recently, on my Moores Lore blog, I wrote a long piece excoriating TechCentral Station , little knowing that one of my fellow Corante bloggers worked for them.

This forced me to think long and hard about what I wrote but, on further review, I can't take a word back. In real journalism, you don't expect that every article will be specifically funded by a sponsor, and that the link between payment and delivery of content will be hidden from view. In a real think tank, you make the sources of your funding known to the public, and you don't hide it through a Limited Liability Company (LLC).

What we're talking about is intellectual fraud. You are claiming to be covering something when in fact you're just a carnival barker. Not only are you a pig, but you're covering all of those in the area who aren't pigs with mud.

I know how hard it is to make a living with words. I have written company-funded white papers. I know what it is to be a gun for hire. But in those cases the clients distribute the papers, not me. I don't go out into the market and call an advertisement an expose.

James Glassman does. Do not believe a single word he says or writes, ever. Because you can never be sure they're his words. Once you let the puppetmaster put his hand up your butt, and they have caused your lips to move, and they have taken the bow on your behalf, you are no longer a real boy.

Google As Straw Man

Unlike James Glassman, the Cato Institute is an honest "think tank." You know what it's about, conservative libertarianism, and you generally know where it's money is coming from, because it's run as a 501(c)3 operation, tax-exempt but with public documents on its funding.

But this does not mean that Cato is always intellectually honest. Like any political group, and like any politician, it can engage in misdirection, misrepresentation, and the dreaded "straw man" argument. This last is when, instead of arguing the relevant issue, you create a phony example and argue from there.

Cato did just that last week, claiming Google is about to be regulated as a monopoly Google neither has nor exercises pricing power. Cato knows this. But by making "regulate Google" ridiculous, there is another agenda at work. This is the idea that regulating any tech monopoly - like Microsoft, the Bells, or the cable guys, is ridiculous.

It's not. Anti-trust is a vital government tool. There is no real difference between a monopoly, even the shared monopoly of a "trust," and state capitalism. In both cases you have bureaucracy, you have prices manipulated to benefit a few, and you are preventing real competition from emerging.

Western politics are living in a false choice between big business and big government. Big is necessary in a big world, but all bigs must be watched closely. There must be big checks and balances between the power of business and government. Without them, it doesn't matter which side wins. The people (and the market) lose.

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Clued-in, Clueless

Clued-in is killing the FCC's media ownership rules in the Congress .

Clueless is thinking that action alone does any good .

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