My new favorite economist Tim Harford did a great TED talk recently chatting about our assumption that an expert approach is needed to problem solving. He argues that instead we should rely more on trial and error, a method that has proven very effective both in nature and business.
If the loading animation won’t disappear then try viewing the video on this page.
As I sat drinking espresso chatting to my experienced entrepreneur friend who prefers to remain anonymous, we decided there are three classes of businesses:
Mime businesses perform a service similar to a mime in a Parisian public square. The mime can try and charge the audience, but it doesn’t always work and it’s tough. Smart mime’s know that the audience is the product and the mime’s customers are those that pay him for access to that product. The amount of money a mime can make is directly proportional to the amount of product he has to sell. Mime’s need a lot of product to be successful. The audience doesn’t get any direct value from the mime’s performance so they don’t need the mime. If he goes away the audience will be just fine.
Examples of mime businesses: Huffington Post, TMZ.com, Facebook, Twitter.
Bakers sell a product that has clear tangible value. You know this because if you wanted to you could resell the product to someone else for a price not too distant from the one you paid. The amount you pay for a baker’s product is worth less to you than the value of the product itself. What the baker charges is whatever it cost him plus whatever the market will bear. If all bakers disappear there won’t be any bread and panic may ensue.
Examples of bakers: Walmart, Barnes and Noble, Costco, Linode, Apple, Microsoft, Dell.
These might be bakers or mime’s. You decide: FT.com, NYTimes.com.
Bankers (investment bankers in this metaphor) sell a product that can help you make more money. A banker’s product can improve your circumstances. In rare cases it can make you wealthy. Bankers are selling a product that has real value, bundled with hope which means they can charge more.
Examples of bankers: Ebay, Amazon’s seller program, Paypal, SEOMoz, Authorize.net, Google AdWords, Google AdSense, iTunes and Android market for developers.
If you’re using timthumb in your wordpress theme on WordPressMU and it’s not finding certain files, this may be why:
WordPressMU uses the blogs.dir directory to store uploads. timthumb’s search routine when looking for images to resize doesn’t include this directory.
Here a modified version I created that does include the dir:
https://markmaunder.com/timthumb.txt
You will need to add the following query param to all your timthumb.php URL’s when using this version:
blogid=<?php echo get_current_blog_id(); ?>
That way timthumb knows which blogs.dir directory to look in for images.
I’ve had this blog entry saved as draft for a month, and Tom Buck’s post earlier today titled “Failure: Building a $50/month web app” inspired me to post this. He remarks in his post “My mistake quickly became obvious: I had built a tool for an audience that didn’t like to spend money.”. Here’s my take (and my verbatim draft from a month ago):
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” — Friedrich von Hayek
Hayek’s wonderful quote captures both the wisdom and arrogance of economists and their field, so consider it my caveat for the observations below.
The canonical example of adverse selection comes from the industry that invented the term: In the insurance industry, customers who are more likely to die tend to buy more life insurance. Because the insurer doesn’t have all information on the health of buyers, life insurance as a product tends to select the wrong customer i.e. customers who are less profitable because they die sooner.
In the online world, “Free” is a popular model for gaining “Traction”, meaning access to many customers. The assumption is that a reasonable percentage of those free customers will at some point become buyers. Therefore success is gauged by growth in the population of a company’s free customers because at any time a company can pull the “revenue lever”.
The problem and a realization I had during the last year, is that “Free” can adversely select against paying customers.
Customers who use many free products online are less likely to pay for a paid service. Conversely, customers who have recently paid for an online service are far more likely to pay for other online services. And what you may view as incentives to upgrading may be further selecting against customers who will pay in future.
One might argue that this is simply the old sales adage that customers who are most likely to buy something from you are those that just bought something from you. But I’d argue that this works across company boundaries e.g. if a business refers customers who recently bought their service to another business, those customers are far more valuable than referrals from a free service – because they’re the kind of customer that pays.
Adding disincentives to using your free product (or incentives to upgrading if you flip it around) strengthens the adverse selection problem because those who adopt your free product, presumably prior to upgrading to paid, have a strong desire to never pay. Their desire is so strong that they will tolerate whatever irritant you’ve introduced in the free product which makes the likelihood of them upgrading to your paid product even less.
So is Free useless? No it’s not and it can be a method of establishing a relationship and trust provided you target free customers where other criteria qualifies them as likely to pay in future and the free product doesn’t disqualify them.
For example, you could choose to only provide your free service to customers who have recently paid for an online service somewhere else. In addition, the free product must not adversely select against those customers once you’ve recruited them e.g. Your free product must be something that a paying customer is more likely to use and like, rather than a gatekeeper that irritates until the customer either leaves in frustration or upgrades.
Free works, provided it targets the correct customer and continues to incentivize them on their journey to becoming a future paying customer.
Update: It’s sold.
You know those bought-new-by-an-old-lady-and-hardly-driven sports car deals used car salesmen try to convince you you’re getting. Well this is the real deal so I thought I’d post it to my blog.
My mom in law who is a lovely english lady with a taste for red collectible sports cars is selling her 97 Cobra SVT Coupe for a steal. She hardly drives it anymore and wants it to go to a good home. It only has 15,413 miles on the clock.
This Cobra has the newer aluminum 4.6 liter, DOHC, modular V8 engine that is smoother and produces 305 hp and 300 lbf·ft of torque off the factory floor.
I’m going to cross post this to eBay motors soon, so if you read this blog you have a short while to get a first look. She’s asking $14,950. Cash only, and please bring the cash with you if you want to test drive. Sorry, but she’s heard too many joy-ride horror stories and this car is in showroom condition.
This car is in Elizabeth, Colorado, about 40 minutes south of Denver. If I know you and you’re in Seattle or somewhere between Seattle and Denver then we can probably figure something out. Kerry and I drive the route often and we can probably drop the car off on our way to Seattle.
V8 4.6 liter 305hp. 5 speed manual with Overdrive. ABS/Disc brakes. BOSE stereo system. Power steering, power brakes, power windows, power locks, power mirrors, power driver’s seat, air conditioning, cruise control, alarm system, dual air-bags, remote keyless entry. Rear spoiler. Black leather interior. Tinted windows. Fog lamps. California emissions system. CD player. Rear window defroster. SVT – engine has been signed by the Special Vehicle Team. Only 6,961 Cobra Coupes were made for this year.
Service schedule followed religiously, no work done besides regular oil changes etc. This car has never been modified, chipped, etc (obviously!)
VIN: 1FALP47V4VF193183
If you’re interested, email me at the email address on the right or call my cell on 206-697-8723 and leave a message and I’ll call you back.
Money talks. Or, in this case it doesn’t.
Have you noticed that the vast majority of published ideas will not increase your business or personal revenue? If someone has a truly great idea for increasing earnings or creating new revenue out of thin air, they will implement or trade it themselves and will never share.
At the point a great (tech sector) business concept is shared, it enters the highly efficient ideas market that is the Tech Echo Chamber (HN, Reddit, Slashdot, TC, etc..) – which efficiently propagates it out to the rest of the world’s population of innovators. At this point the idea is undifferentiated, rapidly being implemented by all, and you’re in a price or other kind of efficiency war.
This, combined with the truism that it’s not a bad idea to completely ignore your competitors and focus on your customers, makes it a pretty darn good idea to avoid spending too much time on tech publications and social media outlets. You will learn nothing new and what you will learn loses much of its value the moment it’s published. The temptation to imitate will probably harm your business as you’re bounced along in the current of swarming incompetents.
The main (possibly only) thing I use blogs and social media reporting on tech news for is to keep track of landscape changes. Changes in the economics of a sector or changes in technology. Either of these almost always signal the start of a firestorm of innovation.
Focus on your customers, find the truly brilliant ideas that solve customer problems and beware of sharing them too early.
Footnote: The concept I’m describing relates to Efficient Market Hypothesis and Information Asymmetry if you’d like to read more.
The Alexa graph above only shows the ycombinator.com domain, but most of the traffic to the domain is HN. Also HN is visible on several other domains like hackerne.ws, which isn’t counted in the above graph, so it’s probably already passed Slashdot.
Footnote: This post was something more political re comment scores. But I decided I don’t have the stomach for that fight, so editing and leaving just the data.
It’s been a year long break from blogging and getting back to writing and getting a so many new visitors this soon is cool. [Thanks HN!]
This blog runs on the smallest available Linode 512 instance for $20/month. It runs several sites including family blogs and hobby sites. I run nginx on the front end and reverse proxy to 5 Apache children which saves me having to run roughly 100 Apache children to handle the brief spikes of around 20 hits per second I saw yesterday.
Technologies like event-servers (Nginx, node.js, etc) and cheap and reliable virtualization may seem like old hat, but in 2005 Linode was charging $40/month for a 128Meg instance (it’s now $20/month for 512Megs, 88% cheaper) and Nginx was only going to hit main-stream use two years later. In fact Nginx only hit version 1.0 last month.
Five years ago many companies or bloggers would have used a physical box with 3.5 Gigabytes of memory to handle 100 apache instances and the database for this kind of traffic. About $300/month based on current pricing for physical dedicated servers from ServerBeach which hasn’t changed much since 2005.
With the move from hardware and multiprocess servers to virtualization and event-servers, hosting costs have dropped to 6% of what they were 5 years ago. A drop of 94% in a variable cost for any sector changes the economics in a way that usually causes disruption and innovation.
So where is the disruption and innovation happening now that anyone can afford a million-hits-a-month server?
Footnotes: An unstable version of Nginx was available in 2005/2006 and Lighttpd was also an alternative back then for reverse proxying. But it was for hardcore hackers who didn’t mind relatively unstable and bleeding-edge configurations. Mainstream configuration in 2005 was running big memory servers on dedicated machines with a huge number of Apache children. Sadly, much of the web is still run this way. I shudder to think of the environmental impact of all those front-end web boxes. I also don’t address the subject of Keep-Alive on Apache. Disabling Keep-Alive is a way to get a lot more bang for your hardware (specifically you need less memory because you run less apache children) while sacrificing some browser performance. The norm in 2005 was to leave keepalive enabled, but set to a short timeout. With Keepalive set to 15 seconds, my estimate of 100 apache instances for 20 hits per second is probably way too optimistic. With Keep-Alive disabled you would barely handle 20 requests per second with 100 children when taking into account latency per request for slower connections. Bandwidth cost is also a consideration, but gzip and running compressed code, using CDN versions of libs like jQuery that someone else hosts and running a stripped down site with few images helps. [Think Craigslist] With a page size of 100K, Linode’s 400GB bandwidth allowance gives you 4,194,304 pageviews.
Clarence from Panabee pinged me a few minutes ago mentioning Panabee.com. I hadn’t heard of it and along with nxdom.com I’m going to add it to my toolkit to brainstorm available domain names.
My attitude re names these days fluctates between the-name-is-everything and back to sanity.
A week ago I was obsessed with the domain name WordPrice.com which a friendly cybersquatter wanted to sell me for $700. I even contacted the owner of a very similar mark and kindly got the OK to use it for what I intended. Then backed off at the last minute because a) I refuse to support cybersquatting and b) names are more about creating a well loved and well remembered brand than pretty words.
Keep in mind the relative strength of different types of trademarks when you’re thinking about future brands. Make sure you do a USPTO search and at some point spend $500 with a TM attorney to get your use of your new mark on record and start the trademark clock. I also tend to screenshot a few 100-result google searches for any new potentially strong mark I’m going to use. I date them and file them. [Once you’ve had your ass handed to you in a trademark lawsuit like I have, you get paranoid]
This quote, which went viral 2 months ago and that Steinbeck probably never said, has stuck with me:
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” ~Maybe not Steinbeck, but it’s cool and it’s true.
As temporarily embarrassed millionaire programmers I feel we sometimes don’t pursue projects that could be buying awesome toys every month, making up for that underwater mortgage or adding valuable incremental income. Projects in this space aren’t the next Facebook or Twitter so they don’t pass the knock-it-out-the-park test.
There are so many ideas in this neglected space that have worked and continue to work. Here’s a start:
Update: To clarify, “competition” above refers to competition among advertisers paying for clicks in a sector. More competition is a good thing for publishers because it means higher CPC and more ad inventory i.e. a higher likelihood an ad will be available for a specific page with specific subject matter in your space. [Thanks Bill!]
Update2: My very good mate Joe Heitzeberg runs MediaPiston which is a great way to connect with high quality authors of original content. If you do have a moderate budget and are looking for useful and unique content to get started, give Joe and his crew a shout! They have great authors and have really nailed the QA and feedback process with their platform.