Monday, August 31, 2009

Free vs. Freemium in online markets

I was talking to a colleague of mine who is an Amazon Vine reviewer ( -- a select group of customers who are invited to post their opinions about new books and other items on Amazon's Web site. They get free copies, and their reviews aren't edited or modified in any fashion by the company after they are written. I was jealous, but started thinking more about the meaning of free.

Coincidentally, I have been reading (on my iKindle, of course) Chris Anderson's latest book "Free, the future of a radical price." The book is based on a Wired magazine article of the same subject (he runs the editorial for the magazine). He describes the various efforts of vendors to make money at giving away free stuff, by building a market or demonstrating value or building word of mouth. In the digital age, it is easy to have a place to download an app or read through a Web site and then offer paid upgrades for people who want more. Fred Wilson coined the term "freemium" to refer to this practice, and it is now so widespread that most online shoppers have come to expect that they can get something for nothing on just about every Web site that they land on these days. Or least a limited 30 day trial or download or subscription.

Indeed, in the new ventures that I have been mentoring I start almost immediately thinking about what they can give away for free. It is still the best way to start out in this chaotic eWorld. If you are starting a new business, you might want to take the time to at least skim Anderson's book. You also might want to read this New York Times article that analyzes the cash flow from Evernote, an online services company:

Evernote converts less than one percent of the 4500 customers who sign up everyday to try their service into paying customers at $5 a month. But the more interesting number is that within a year of using the free service, the conversion rate jumps to four percent, because customers get more deeply involved and are willing to pay to enable more storage or more features. This brings the share of revenue per customer up from three cents to 35 cents. That is a powerful argument towards free. What is also interesting is that their variable costs have been plummeting, as you would expect: from 50 cents a month per active user down to nine cents today.

This is very typical of an online business, and indeed another example is how Google continually adds storage to its Gmail service, or why Yahoo can offer unlimited email storage – because these costs are dropping fast.

Then I realized that I have been doing this exact same strategy for the last 15 or so years ever since I started this Web Informant mail newsletter/blog/social network thingie. Whatever it has become, I do spend a lot of time each week thinking about what I am going to write to you all, and then posting it in its various forms around the Internets. And I don't ask you for money (well, I do ask for charitable contributions once a year, but that is another matter) and do it willingly and with the expectation that at some point in the future, you will "upgrade" to the paid Strom service of having me write something or speak somewhere or consult on something. Not all of you have hired me, of course, and some of you will never do so (don't worry, I don't take it personally). But enough of you do that this method has served me well in my business, bringing many loyal readers and clients over the years. The free Web Informants, and the various other cyber collections of stuff that I curate (there are tons of products on various lists here at and hand-pick have built up a level of value, trust, and quality that I like to think you all appreciate.

Tuesday, August 25, 2009

Painless offsite online backups using 3X Backup

The 3X Systems Backup appliance is a great way to automatically backup a collection of PCs and servers across the Internet at reasonable cost.

We tested version 2.1.6 in August 2009 on a small network of Windows clients and servers.

Windows agents available for 2000 and later versions, including both servers and 64-bit OS's

• Easy to setup and operate
• Simple and effective offsite backups
• Can scale up storage as disk requirements grow

• Only Windows agents supported
• Require recent browser versions such as IE v7 and Firefox v2
• Restoring full domain controller or specific email messages could be easier

Price: base system starts at $2,495.00

3X Systems

1275 Kinnear Road,
Columbus Ohio 43212

The battle of eReaders will be all about software

There is a lot of activity on the eBook front: Sony earlier announced that they would be moving towards supporting the open ePub eBook format on their eReaders, and they are expected to announce a new eReader that incorporates cellular data connectivity. Barnes and Noble announced this week that they are partnering with Irex Technologies and will come out with a new device later this year.

But with all the hoopla and promise, one thing missing from a lot of coverage is the software side of things. That is where the eBook eBattles will be fought and won.

eBooks are beginning to take hold for a lot of different reasons: finally there are enough titles available (although in a confusing array of formats and readers). Prices on the devices have come down and quality has gone up. Prices on the eBook titles themselves are at parity with the mass market paperbacks. The size and quality of the screens is approaching that of printed paper. Battery life is reasonable.

All of this may be well and good, but the real reason that eBooks are doing well is that the software is finally catching up with the hardware. Why so? Because you need a great combination of eReader software along with Web storefronts that offer the books for sale and allow people to shop and discover books that they want to download to their readers. Some of the people that design the Web stores that offer up the eBooks are getting some clue here. The best example is Amazon's Kindle storefront. Why? Because first and foremost, they know how to sell books online. Inside of about 35 seconds, I can find and purchase an eBook, and in another 35 seconds, have it in my hot little hands and start reading. It is hard to beat that kind of delivery time.

Sony's Web store,, comes in second, such as trying to find bargains. On both you can sort eBooks by price, but because Amazon offers so many free eBooks, it is hard to find current titles. Sony does a better job. Sadly, in order to buy an eBook from Sony, you need their desktop client software. B& is just plain miserable.

My choice of eReader is to use the Kindle app that runs on the iPhone/iPod touch. I don't have to carry another device around, and while the Kindle reader does drain my iPhone battery, I can deal with it. I also don't read much beyond text: if I had a need for more graphics-rich documents, I would consider another reading device.

I have read about a dozen books from start to finish on my iPhone and found the experience to be more than satisfactory. Most of these are the sort of books that I would buy in airports and dispose of or donate almost immediately after reading. The iPhone Kindle app has a few things going for it: since I carry my phone everywhere, I am not without reading material to fill in those small time gaps during the day while I am waiting in an office for an appointment or so forth. At night, I can continue reading in bed without annoying my wife, since the screen is backlit. The page turning process is something you get used to, and the ease at which you can find a book and start reading within about a minute is great for those of us that require near-instant gratification. You can be well into the new best seller of your choice before anyone else had even time to get to the bookstore, let alone wait for the overnight Amazon shipment.

If you are in the market for an eReader and have an iPhone, it is a simple matter to download the free app, start browsing Amazon's Kindle store, and stuff it full of eBooks. If you don't have an iPhone, it almost makes economic sense to buy an iPod Touch and dedicate it to reading books: the cost is nearly the same as the Kindle hardware device. The downside is that you will need to be in WiFi range to download your books. On the iPhone, like the Kindle hardware, you can download over the cellular network.

If you have a Blackberry, Palm and some other PDA, then you have two choices: either the Barnes and Noble eReader or the Mobipocket eReader. Both are more cumbersome to use than the Kindle app, and require you to download books to your desktop first. I couldn't really get the B&N app going, it seemed like it had too many moving parts.

Sony's eReader currently lacks the communications but supports a lot of different book formats, including their own which they are phasing out by the end of the year in favor of ePub. And they have a growing culture of modders who have exposed the underlying Linux OS to do various things:

ePub-formatted books can be read on the iPhone with Stanza, but the process is also cumbersome and clunky, certainly nowhere near the experience of the Kindle. Google and others have digitized many public domain books in this format, but few of the current best sellers are in it. Amazon, by virtue of their market position, is in a better place here. They also understand how to develop Web software, something Sony -- and B&N for that matter -- still haven't caught on to. The better the Web stores are, the more eBooks will be sold.

For eBooks to be truly eUniversal, Kindle needs to be able to read ePub formats, and be available on Blackberries and Palms and other larger-screen phones and PDAs. And all the various players – including Sony – need to eliminate the digital rights management that comes with your eBook, as has been reported with last month's debacle over "1984."

While nothing will ever replace the physical bookstore browsing experience, at least for me, I am glad to see this market continue to mature.

Monday, August 17, 2009

Listening to the voice of the customer

Two companies are showing that in today's touchy economy, making the sale is all about the way you respond to a customer via the telephone. And not only are they are listening very carefully but also they are using sophisticated software systems to help implement their solutions. One of them, called, is brand new, launching this week. The other one is very well established, called Varolii, and we'll get to them in a moment.

Aisle411 is used to help consumers find a specific item in a store. Say it is a hardware store that you don't often frequent, so you don't have the store layout encoded in your brain. You spend the first few minutes wandering the aisles, or asking an employee where your item is located. Wouldn't it be nice if a service could tell you where you can find it – by aisle number and shelf position?

I have a confession to make: I am not a shopper. I don't like to buy stuff, of any kind. But what Aisle411 is doing is noteworthy just for people like me, who measure the amount of time inside a store in microseconds. According to their research, more than 13% of shoppers leave a store without finding what they came for in the first place.

Aisle411 uses speech recognition software and some elegant programming to direct shoppers to the right place in the particular store they are trying to navigate. You just call them up and say what you are looking for.

Behind this phone call there is a huge database of products, store layouts, and other information. And while Aisle411 is just getting started with a few Ace Hardware stores in the St. Louis suburbs, they have big plans to work with a number of national retailers, who see this as a way to differentiate themselves and offer up better customer service, as well as to increase sales by helping their customers actually buy more stuff when they are roaming the aisles. And Aisle411 is turning its systems into a way to provide better leads management, inventory management, and real-time tracking for store owners. They can deliver coupons for related products to the consumers’ cell phone via a text message, too. And the service is free for consumers.

Now let's contrast what an older company is doing to help provide better customer service with automated call center software. What do you do when you get a incoming robotic phone call from one of these services? I know what I do, I hang up. I don't want to talk to a machine. But to try to keep more people on the line, as well as actually provide better customer service, you have to combine the best bits of psychology with technology, as the folks from Varolii – one of the leading vendors in this software -- have found out.

The company's automated attendant completes over a billion calls a year for many large banks, airlines, and others that need to make customer service calls. They have begun learning from all these calls and now apply a little bit of psychology and population dynamics in helping their customers prepare the right series of voice prompts for their automated systems. Their goal is to help keep more people on the line and provide better customer service.

Varolii has learned that different age groups respond differently to how they are contacted by their systems. With Gen Yers, you want to send a text message and then follow up with a voice call, which is exactly the reverse of how to deal with a GenXer: call first and then follow up with a confirming text message, while for baby boomers call first and then follow up with email. And the strategy for seniors is to use voice prompts that speak slower and can be repeated. They have also found that the time of day and the sex of the recorded voice matters in terms of getting the best response too. How many of us have heard "press one for English, two in Spanish?" – well, that isn’t the best prompt design, because someone could hit the wrong key on the phone dialer pad by mistake and then start receiving prompts in the wrong language. A better method would be to move the response key further away, such as pressing 9 for Spanish.

They found that calls that avoided the use of Social Security numbers but could authenticate the account holder with some other specific information, such as an airline frequent flier ID or bank account number, increase the probability of action by 30%. And using the word "now" in a prompt, such as "press one now to activate your card," add a sense of urgency and that will translate into better results.

Finally, unlike the movie Jerry Maguire, you don't have me at hello. In fact, you want to avoid starting any calls with "hello" – when you remove hello from the initial greetings, you get a 50% increase in live answers. The company suggests starting off with identifying the company name and purpose of the call, and start talking immediately upon when the call is answered.

Both Varolii and Aisle411 are showing that it pays to listen and track what customers are doing over the phone. Both also marry some sophisticated voice response software with lo-tech phone calls to help improve customer service. It just shows you that when it comes to doing innovative things over the telephone, we still have a lot to learn.

Monday, August 10, 2009

Netflix should buy the US Postal Service

Congress last week began hearings about whether to discontinue Saturday mail delivery, close local branches and other measures to try to balance the postal service's budget. On the national news last night was a story about how a small town in Maine fought to retain its lone street mailbox. I say desperate times call for much bigger measures, and my suggestion is to sell the entire USPS outfit to Netflix, lock, stock, and … Well, you don't want to say certain words around postal employees – at least until they become Netflix staffers. More on that in a moment.

It isn't so far-fetched when you start to think about the possibilities. After all, Netflix is keeping the USPS afloat with more mailings of DVDs than McDonalds sells burgers. They have more than 50 distribution centers around the country, all of them in locations that are more secret than Dick Cheney's bunker. They certainly understand how to run a distribution network, they have the machinery and the personnel. Plus, something that would warm the cockles of my Republican wife's heart, I can't believe that I am saying this but having a truly private mail carrier might actually bring some economic sense to our mail system.

How would this look? Here are my suggestions: First all, all mail would be one size and have to be sent in those familiar red mailers. That would mean that anything larger would have to use some other carrier, such as Fedex or UPS. International mail? Same thing. Magazines? Well, this is hard for an old magazine editor like myself, but they will have to change to the Netflix form factor if they still want to be mailed. Junk mail? Same deal. Standardization is key. No more post cards. If it doesn't fit in a mailer, you can't mail it.

Next, we eliminate potage stamps. Since we all will be using the standard mailers, we have standard postage. You buy the mailer and pay for the postage right then and there. Forget about metering based on weight: whatever you can cram into one of those envelopes is what you get to send. This obviates the need to run local post offices: if you need to mail something bigger, you can go on down to Kinkos or the local UPS store. They give better customer service there anyway. No more postage meters, but Pitney Bowes has been on the decline for years anyway.

And while we are at, we should eliminate business delivery of postal mail. Don't need it. You want to send something, use one of the other private carriers and get it there overnight. I recall a funny story a few years ago, when I was doing some work for a publishing firm and mailed in my signed contract. My editor kept saying that he never received the contract, because he never thought to ask where his actual postal mailbox was – there was little point because he never got anything via USPS that he cared about. The only thing that I get these days are checks, and we might as well move towards electronic payments anyway. Some of my clients now do direct deposit to my bank account, and I wish more did.

Netflix is a good choice to run the USPS for one other reason: it has an amazing employee base. You couldn't pick something that was more the polar opposite of the feather-bedded, anti-customer oriented, highly motivated, hyper regulated postal system if you tried. How so? There is no vacation or hourly time card tracking policy at Netflix. There is also no specified uniforms or other dress code policy there but no one has come to work naked lately. Their entire T&E policy is "Act in Netflix's Best Interests" and not much more than that. I think that says a lot about how much a company can trust its employees, unlike many firms that make you take odd flights to save a few dollars that consume hours of your time, or jigger your expense report so you can get almost reimbursed for your actual out-of-pocket expenses. The lesson is that you don't need detailed policies for everything. (You can see the details of this for yourself if you are interested here:

I know having Netflix run the postal system is probably a fantasy. But it is fun to dream, and have hopes, right?

Monday, August 3, 2009

Eyes on the prize

The news last month that two groups of computational researchers have qualified for the $1 million Netflix Prize got me thinking about how other prizes have had a very influential role in technology development. For those of you that missed this nugget, several dozen different computer scientists and mathematicians have tried over the past year to improve upon the algorithms that Netflix uses to recommend new videos to its subscribers. The teams that could get better than a 10% improvement (defined very precisely by Netflix) would qualify to win the prize purse.

This is only the latest in a series of prize-motivated developments. For the past three years, a group of southern California investors have been working on a venture called Prize Capital. The effort grew out of the work of the Ansari X PRIZE Foundation that awarded a $10 million prize in 2004 for the first private spaceflight.

Prize Capital combines old-fashioned greed with socially conscious investing on a grand scale. Their concept is thrilling, with a simple idea at its core. An investment firm creates a fund that will be used to invest in the total field of competitors in a single niche market. The complexity comes about in its execution, which may be why no one has ever tried to do it on the scale that they envision before now. The first prize effort is underway to develop better biofuels:

Unlike traditional venture funds that invest in multiple companies or sector funds that serve particular markets, the prize capital model starts with this "matrix fund". The genius behind the idea is that this fund drives an entire ecosystem for directing high-return innovations. The largest and most noticeable element is a very public science contest that all of the funded companies take part in, going after a ten million dollar prize purse and racing to be the first to establish a particular invention, task, or medical cure.

The Prize Capital notion is revolutionary and differs from existing venture or sector funds on several different dimensions. First, the combination of the matrix funding model with the prize competition is a brilliant deal-discovery mechanism. The allure of the challenge and the chance to be in the spotlight, not to mention the actual cash prize itself, can help to locate and identify potential technology solutions in a particular market niche. Because the prize is a public one, the bright light of worldwide publicity associated with the contest can help bring about all sorts of benefits to the competing companies, including attracting additional investors and management talent.

Second, "the matrix model permits investors to bet on every horse in the race," says Lee Stein, one of the founders of Prize Capital and an early leader in the Internet payments industry in the mid-1990s. "A lot of times VCs don't make investments because they have a short list of companies in a particular niche but can only invest in one. The matrix model enables them to play the full field and spread their risk."

Traditional venture capital funding is not structured to take positions in direct competitors, while the matrix concept relishes this situation. Prize Capital leverages its relationship with the prize management industry to take positions with everyone in a given field. As long as the competition is attractive enough to cause everyone in a given field to enter a particular competition, the result is a new opportunity for investors to become involved with cutting edge technology. Spreading the investments across the matrix can create additional leverage and reduce the risk of the investors.

A third difference is that Prize Capital will own a royalty stream on the intellectual property generated by the teams in the competition. Even if a given company fails to win the prize, the fund has the ability to succeed.

Fourth, the prize mechanics are important part of the deal, and here is where the groundbreaking work on the Ansari X PRIZE has paid off. These mechanics have to be carefully scripted and innovation targets clearly defined. The competition also requires that the ultimate science must be repeatable and independently verifiable. This was done on the Ansari X PRIZE and is an essential element of any planned future competitions.

The prize is only awarded when a positive report comes back saying everything works. This process is more stringent than that is typically required by peer-reviewed academic journals, the current prestige venue for scientific results. Prize Capital thus could be in an interesting position of being able to set a very high bar here for how basic research is conducted in the future.

While the traditional VC trades capital for equity positions in their portfolio companies, Prize Capital can use other kinds of benefits, including the additional influence from the publicity and activities of the competitors as they work hard to meet the particular goals to win the prize, to secure stakes in the innovation on favorable terms.

Most science competitions have been funded through philanthropic means. Prize Capitalism leverages the large jumps in technology innovation and uses it to fuel an entire ecosystem of investments to take advantage of these innovations.

Look at what happened with the original X PRIZE. That initial $10 million prize purse was leveraged into over $100 million into work being done to develop two spaceports in the New Mexico and Arabian deserts. This isn't just a lot of dot-com sock puppets or social networking startups depending on ad click-throughs. This is hard-core real estate development, new job creation and engineers building real assets on the ground.

The Prize Capital model has something for everybody. It could bring a ray of hope for many people that are looking at ways to dramatically increase basic research and kick start medical cures. It can co-opt the heavy publicity surrounding the whole prize itself and the take advantage of the spirit of invention and innovation that so often goes hand-in-hand with the best American capitalists. It has universal appeal across nations and cultures too, and can play as well with the new generation of Asian proto-capitalists and with the old crew along Sand Hill Road too. And it has some Hollywood glitz on the order of "American Idol" and yet still appeals to button-down Wall Street bottom-line sensibilities. It is an intriguing mix of investors, capitalists, non-profit charities and philanthropists working hand-in-hand, all in the name of advancing science and fostering innovation. I wish them well and hope to see the fruits of their labors soon. In the meantime, keep your eyes on other prizes.

About Me

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David Strom has looked at hundreds of computer products over a more than 20 year career in IT and computer journalism. He was the founding editor-in-chief of Network Computing magazine, and now writes for Baseline, Information Security, Tom's Hardware, and the New York Times.