by Dana Blankenhorn
  Volume VIII, No. VIII

This Week's Clue: Gurley Man

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This Week's Clue: Gurley Man
SSP (Shameless Self Promotion)
SP (Shameless Promotion)
The Tipping Point
Clued-in, Clueless

Dana Recommends The Blankenhorn Effect offers a powerful, positive message for our time. Once you understand how Moore's Law impacts every part of your life, how powerful it is, and how irresistible a force it truly is, you will have the power to predict the future and know how to change it. Buy it today, and make 2004 a better year for yourself, your business, and your family.


For the Week of March 1, 2004

NOTE: For those who count such things, Wednesday is the 7th birthday of this newsletter. Who woulda thunk it? And in honor of that, we return this week to our original beat -- Internet Commerce -- to see whether our intended audience has gotten A Clue yet....

When this letter launched my only beat was Internet Commerce.

Seven years on, "Big Internet" commerce is fairly well established. Whole niches - classifieds, travel, books - have gone over to the Web. We even have the equivalent of a Wal-Mart in Amazon. And in eBay, we have something no other medium has ever had.

Small Internet commerce has not done so well. This remains curious to me, because small businesses can, in fact, get more from the Internet, more quickly, and with less investment than larger businesses.

So why don't they?

Partly this is because they think they have to act like big businesses. They think they need flashy Web sites, online shopping carts, expensive design services.

Well, a small business can succeed without any of that. You don't even need a domain name.

I had the chance to see why with the failure of my local sci-fi bookstore. Partly at my urging, the owner had created a mailing list, which actually extended his run for a few years. But he never properly exploited it. He sent his list regular missives, but they were always about him, not us. He had too much stuff, he had so many problems, he would go under if we didn't come in and buy NOW. Eventually the customers became exhausted.

It's amazing, in retrospect, how close he came to success without actually reaching the goal. He got a good list together, he e-mailed that list regularly, and he brought in some business from it.

He went wrong on the question of intimacy. He treated his customers like an abusive spouse, demanding that they serve him, which is not the way a lover acts. This is a key you can use to take any small business to success, even today.

First, provide an immediate benefit to anyone who agrees to join your list. Only take names in person, and hand them their premium personally. It could be a discount on that day's purchase, it could be the first $10 of a $50 gift certificate. It could be a free sample, or some consulting. Think of it as flowers or candy you bring to a first date.

Now what are you sending in your e-mail? You're sending three things, actually. First you're sending exclusive offers - goods, bargains or services your other customers can't get. Second (and this is more important than the first thing) you are sending yourself - your sensibility, your taste, your attitude, your personality. Third you are sending, actually insisting upon, a return note. Everywhere you can, a small business should be encouraging feedback. Suggest that rare goods be reserved, create special events that people will want to reserve space for, solicit ideas for products and services you can special order.

You're trying to get personal conversations going. You're trying to create intimacy. You're building a customer database, both on a computer and in your head, that will keep you one step ahead of demand. In the end you're trying to become the hub of a community.

When people feel an intimate relationship with a merchant, they tell their friends about it. If you can provide the same great service to these new customers you do for your older ones, you are building your business.

Every sale that comes as a special order is a sale you wouldn't make otherwise. Every special event you can get together is free money. Every response from any customer represents new intimacy, and new commitment, from them to you. And this is where referrals come from.

You don't need an e-mail server for this. You don't need an e-mail service. The fact is that a small business can work well with fewer than 1,000 regular, committed customers, along with walk-in trade. And, with a committed cadre of regulars you're bound to get some reviews, some publicity, some reporters nosing around asking what your secret is. Share it. It's no secret. The key is execution.

The number of list members you'll need to succeed won't vary as much as you think. The more your product or service costs, the less often it's bought, but if you can maintain intimacy over the course of 2-3 years that one purchase will make up your cost. This is how real estate works. Lower-cost goods and services have regular customers who buy more often, but they buy less each time. The list sizes may be similar, but the lower-priced goods demand more intimacy.

Any business can do this, on their own schedule. A plumber can write about funny service calls (without naming names) or recommend preventive maintanance. A car mechanic can use intimacy to get into used car sales. A book store can know which authors their customers want to read and start a book-reading club. A coffee shop can become a concert venue, adding short music files as attachments, getting reservations for small intimate evenings. Or they can become an art shop, asking what kinds of pieces people want to see, putting them on display, then acting as middleman. It's up to you.

Why don't more small businesses do this? Fear is one reason. Many businesspeople fear they can't write. Others fear the intimacy involved in this process - they think their stock can speak for them. Some think that things can make up for presence. My plumber sends me a calendar, my dentist gives me a different tschotcke (little gift) each year, always with a lot of fanfare.

Mostly, there are excuses. Despite the down times in most stores, somehow most merchants decide they can't find the time for this. Instead, some will spend hundreds or thousands of dollars on seminars where they will basically be told to do some variation of what I just said, and they won't do that, either.

Anyone can be successful, but it takes more than desire, more than money, more than good products and services. It takes marketing. You must, in the end, sell yourself. Once you commit to doing this, your customer base will find you, your niche will find you, and you'll get the intimacy from your business you've always been seeking.

You'll make your money, but you'll also make friends. The In, in the word Internet, is short for intimate.


Shameless Self-Promotion

I work as a business analyst with Progressive Strategies, a New York research firm that has the ear of the world's top technology companies.

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...


Shameless Promotion

Your list is your most important asset. But what happens when someone forgets who you are and you get on a "spam" blacklist? Your asset becomes worthless.

Need a-clue on how to avoid that? Get your list audited, and managed professionally, by the fine folks at Whitehat , part of the American Computer Group , a long-term leader in database services for direct marketers.

When your list is truly opt-in, not only do you become a white hat yourself, but your e-mails are read, even anticipated, by your audience. That means higher conversions and more money in your pocket.

If you're serious about Internet Commerce, you need Whitehat Interactive . Get it today.


Takes on the News


Howard Dean's failure will be complete unless we can transform this movement into a meaningful third force in American politics.

This is not to demean the Doctor. Dean has done an awful lot in a short time. He gave the Democratic Party back its backbone and themes. He gave a generation of detached, cynical voters a cause, and a way to connect. He has defined this race.

But he has been unable to translate his fierce support into mass appeal. His attempt to move to the right of John Kerry - which is where he is - has gone nowhere. His core supporters didn't give-off centrist vibes. Some scared people. Democratic primary voters have chosen, on the whole, to trust their institutions, not their instincts.

Despite Dean's opposition to the Iraq War and his defining speech about representing "the Democratic Wing of the Democratic Party," Deanism is actually descended from a long line of centrist American political movements which have tried, unsuccessfully, to move both parties off knee-jerk ideological bases for 40 years.

Deanism is frugal (Perot and Anderson), socially tolerant (Bradley), internationalist without being imperialist (Bush I). Deanists want transparency, both in politics (McCain) and business (Hart), we want balance in our treatment of hot-button issues (Ventura), and we want government to work - it's just that simple (as Perot would say). The only two Democrats elected President in the last 40 years -- Jimmy Carter and Bill Clinton -- were Deanists.

Deanism is far more appealing as a general election platform than it is in a primary because Deanists (or Deanites, if you prefer, even Deanistas) lack the institutional structure that would make us a true political force. Instead the movement is all about the leader. Whether, in the past, that leader was John Anderson, Gary Hart, Perot, John McCain, or Bill Bradley doesn't matter. Howard Dean was the only Democratic candidate in this field with real appeal to Republicans and Independents.

Given an institutional base - think tanks, grassroots organizations, media - Deanists could dominate American politics for the next generation. We could, if properly organized, endorse either side in specific races. We could withhold our endorsement, or we could run our own candidates, where there is running room between two extremists. (That's what Jesse Ventura and Arnold Schwarzenegger did.)

The challenge, then, is to build an organization, in every state, and gain institutional rigor on every issue. This will take money, a lot of it. For the last generation the money has been on the political right, which learned lessons with every defeat. They learned and grew savvy on pushing their social agenda after 1988 (with Pat Robertson), their foreign policy agenda after 1992 (with the Project for a New American Century, and their economic agenda after 1996 (with the supply-siders. These movements have since poured themselves into the Bush Administration and domimate policy.

Moderation has failed, it has even come to be mislabeled left-wing extremism, because we clearly see neither our potential power nor our powerlessness. As a result, we are easily pulled apart toward one set of interest groups or the other, because their institutions create the base voters who can dominate party primaries.

The choice in 2004 will also seem to be a choice between two sets of ideological extremes. We can provide the winning margin in many races, but only if we organize, and withhold our support until we get the best policy price.

Beyond that, Deanism must become much more than Howard Dean. It must become think tanks, it must generate cash flow, it must get itself together again, and go beyond the mere visage of Dean, in every village and town. That's the challenge. What began as a fight for one man must become a fight for all of our causes. It's not as much fun as a Presidential campaign, but in the end it's far more worthwhile.

The Far Right did all this, and now they're reaping the benefits. They may be driving our great nation into the ditch, but they've got the wheel, not us. The lesson of this campaign is we won't get the benefits without the hard work. There are no short cuts in politics. Without a real movement behind him, the best man is still just a man.


The Tipping Point

I'm in the market for a new computer.

For career reasons, it needs to be a Windows machine.

I've found a nice little "white box" PC for $484 .

Of course it will need an operating system. Since I need Windows, that means $146.75 for Windows XP Pro. Office Depot sells Office 2003 for about $400 .

See the tipping point? The hardware costs $484, the absolute minimum Microsoft software needed for it to run costs $546.75.

Yes, you can reduce this cost. You can run Linux and Star Office if you like. But if you're a serious office user you run Office. It's your ante into the business game.

This is an important tipping point. There is no Moore's Law of software. If we're to progress further, there needs to be.

But there can't be with Microsoft. Microsoft can't reduce its prices because, frankly, it can't reduce its costs. There are not just coders and support people to feed, but vice presidents, product managers, lawyers, marketers, executives, and shareholders to consider.

Now back when the PC revolution started this was a necessary thing. Hardware cost big money, and you needed each piece of hardware to do many things in order to justify the $3-5,000 investment. The same machine had to run a word processor, games, a spreadsheet, a printer, maybe a scanner, communications, all sorts of things.

Today you can buy a PC to essentially do one thing. My son, these days, uses his PC mainly to run video games. He has a few favorites (which thankfully include Sid Meier's Civilization series) to occupy all his free time. My daughter relies on the Internet to find fan fiction, and to communicate with other fan fiction writers. It has always been true that 90% of a PC's power is wasted on applications that are never used, and 90% of an application's power is wasted on commands that are never used. We paid for that waste, and made no complaint, when the system cost $3,000, even $1,000. But now, with specialization increasing and system costs falling below $500, we are starting to get antsy.

The mismatch between what we want from hardware and what software claims to offer has become intolerable.

As a result progress has essentially halted. The only way Microsoft has found to push things along, even a little bit, has been to subsidize some of its users. If you're buying for a school or university, or a big corporation, you won't pay those prices I quoted -- you will pay much less. (Of course you'll pay those costs on all PCs you have, even those that run Linux.) This sustains the monopoly, but it doesn't feed the bottom line the way individual users or small businesses can (and must).

Still, what if a PC didn't run Office? What if it just ran, say, the Windows kernel, and an IP stack, with a new class of hardware-based applications running on top of it? Then your home might, in fact, have 10 or 20 or more PCs inside it, networked, running the heat and the lights and the security and who-knows-what, with maybe one copy of XP and one of Office, as part of a central control. Perhaps this $600 in software might be rented, made a part of your online bill, just like the services that need attachment to the greater Internet on those other 10-20 PCs?

This sort of thing has to happen for The World of Always-On to get going. In this world, a computer may cost $10. It may consist of a single chip, or perhaps two chips in a case, with an operating system kernel and an application written in firmware. The computer could be running a security camera, or it could be seeking RFID tags in your room with its radio. (Considering the clutter in my son's room, that radio ought to be UWB.)

All this has given Linux an opening. Because Linux is free, that $10 computer costs, essentially, $10. Since Linux is a multi-user multi-tasking operating system, like the Unix it's derived from, you can network these computers without increasing your costs.

Building applications from these parts is the problem. IBM makes it work by charging its costs (plus a profit) to those who require high-end Linux applications. These are business-to-business users who can pay-off the investment in a short time.

But the mass market is different. Here, people are accustomed to getting a fixed price for each piece of software, without regard to how well it works and plays with other software. We tolerate this House of Cards (amid wild cursing) on our present machines. If this House of Cards is running on a heart monitor, we'll die, or worse we'll be crippled, and then we'll sue.

Put simply we need a new business model. The answer may come from what many ISPs have just begun doing.

Earthlink, for instance, sells a "home networking service" for $10/month. What you get for this is a box, from Earthlink, that contains a router, and the software needed to run your home network. You get some Indian support for it, and in a year or so they might get you another one. (You decide when the same way you decide on a cell phone - the contract expires and you threaten to switch carriers unless they give you another one.)

What if that home network were a modular platform, capable of providing far more than $10/month in value? What if it were built on the Linux kernel, or the Windows kernel, so security or voice or inventory or health applications could be built right on top of it? Now you might wind up paying your ISP $30-50 per month for these services. You would be saving the cost of a security service, saving the current cost of your voice phone bill, saving a hospital visit, perhaps saving yourself from being put into a nursing home.

The World of Always-On, in other words, needs new business models that aren't based on the old PC model, and the tipping point for seeking-out those models has been reached, as the cost of software has risen over the cost of hardware.

There are ways this can work. There are ways out of the box. First one to find them wins the future.


Clued-in, Clueless

Clued-in (but evil) is the latest crime scam from Brazil - ATMs outfitted with spy set-ups so thieves can steal your money while you sleep. Be on the lookout, Crimestoppers!

Clueless was Cingular paying over $2,000 per subscriber for AT&T Wireless, which is hemorrhaging them due to poor customer service.


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