He presents a useful model for determining whether or not free is right for your product.

The thing I found most interesting was the concept of “the penny gap.” I hadn’t heard this before.

“The penny gap”—the hardest part is to get your customer to pay you the first penny. This is why it is so critical to choose your premium features wisely.

Also of note is the idea that the costs for most online products will trend towards free.

…Because of declining hosting and bandwidth costs, for most Internet products the marginal cost today is practically … zero.

In other words, if the cost to serve a customer (support aside) is zero, the long-term price of the product in the market will be zero (because of competitive pressure).

Check out the post, it’s very thought provoking.

It’s hard to imagine life without the Internet and the World Wide Web in particular. The Internet significantly changed my life when I was introduced to it in grad school in 1993. It turned out to be how I’ve made my living since then.

Happy Birthday WWW!!!

According to Businessweek, four million online shoppers have signed up for Amazon Prime. These members have increased their purchases 150% since joining the program helping Amazon to grab market share from both online and offline merchants. For consumers, they get their products faster and cheaper. The combination of an extremely wide product selection, 2-day delivery, no shipping charges, and no sales tax (in many instances) makes it hard for other e-commerce sites to compete with Amazon on price and overall customer experience. It’s also a very hard program for all but the largest, most sophisticated e-commerce players to replicate.

But this difficulty for smaller players creates a huge opportunity for a logistics company to step in to help these companies compete.

If I were a logistics company, I’d create a white-label version of Amazon Prime and shop it to second-tier e-commerce players. There is no other way for these players to compete with Amazon, so they’d almost be forced to jump aboard. Whichever logistics company does this will be in position to take market share from their competitors. Plus it reintroduces price competition into the e-commerce space which will benefit consumers. In this case everyone wins – the e-commerce sites, the logistics provider, and consumers – except for Amazon which all of sudden finds their hard-to-replicate loyalty program suddenly copied and put into large scale deployment.

Imagine a $100 price tag for the shipping program for the consumer. It’s split 50/50 between the logistics company and the e-commerce site that sells it. For the e-commerce site, it also comes with deep-discounted shipping fees in exchange for exclusivity for anything shipped under the program.

There could be three approaches:

1)      White-Label – The program is only available through the particular e-commerce site that sold it. Much cleaner implementation, but less value if you don’t have enough products to justify someone essentially pre-purchasing shipping in bulk.

2)      Consortium (similar to the idea in the article) – The program can be sold by multiple e-commerce sites and works with all participating sites. The revenue would probably be split differently, maybe 80/20 with the logistics company keeping the bigger chunk. In exchange, the e-commerce sites would get even steeper shipping discounts to offset the loss of upfront money for joining the program. The consumer would benefit from having more low-price, quick delivery options.

3)      Hybrid – The program is available as either a white-label solution or a part of a consortium with the choice being up to the e-commerce site.

• Business Development 2.0 is BS 1.0
• Corollary to September Post on Web 2.0 Business Development

This time, Twitter provides the example. From Tech Crunch, Twitter releases Blackberry app and acquires Tweetie.

Way back in February the writing was on the wall: Twitter would compete directly with third party developers who were creating Twitter apps. Twitter investor Fred Wilson reiterated that threat just a few days ago when he said most of the apps that third party developers had created were merely “filling holes,” not truly creating “something entirely new on top of Twitter.”

That sure sounds ominous. And then, BOOM. Twitter released its own Blackberry app and acquired Tweetie, which has a popular iPhone and desktop app. The threats are over, Twitter fired missiles at its developers.

You cannot build a business by simply adding a feature to someone else’s product without a partnership with that other company. While it’s possible to make some money this way in the short run, if you are OK with staying small, or perhaps (and this is a very long shot) by getting bought by the larger company, in general this strategy is not going to work for you. They will copy you and crush you. Every company is going to do this. It would be dumb of them not to. That’s how business works. Never forget this.

I went to the Game Developer’s Conference this week. GDC was great. I met some interesting people and saw some cool technology. It’s really great watching the Internet and the gaming industries converge. I love this business!

This first guy is in what amounts to a giant hamster ball. He’s wearing virtual reality goggles and carrying a blaster.

He kept his balance much longer than I thought he would. In the end, he ended up disoriented and flopping around.

This implementation probably isn’t ready for prime time, but it was one of the longest lines at the show.

This second guy was dancing around in a black body suite with a few dozen sensors attached. The computerized image behind him moved on screen in real time with his movements.

Looking at these pictures that I took with my iPhone 3GS, I think I’m going to bring a real camera with me to the next show.

GigaOm summarizes the research this way:

Do you feel that Internet access is a fundamental right? Four in five adults in more than 26 different countries agree with you, according to a new poll sponsored by the BBC World Service. The poll asked more than 27,000 adults about their attitudes towards the Internet, and found that 87 percent of those who regularly use the Internet believe that access should be “the fundamental right of all people.” More than 71 percent of non-Internet users also felt that they should have the right to access the global network. In both South Korea and Mexico, more than 90 percent of those surveyed agreed that access was a fundamental right.

I’m all for the right to Internet access.

I spent 6 years in business development working for 2 large, established players. One of my many responsibilities was evaluating unsolicited, incoming partnership opportunities. While I had never heard the term “ham and egging” referenced in Dana’s post, I experienced it on a regular basis. She describes it as:

…”ham and egging” was first coined by Columbia’s professor Amar Bhide and Harvard Business School’s Howard Stevenson. The term refers to the technique of convincing multiple stakeholders that others are working with you despite the fact that you’re only in talks. The only problem is that most early partners only want to work with you if other reputable partners have already signed on.

Explains Bhide and Stevenson,”the ultimate ham and egging solution is for the entrepreneur to simultaneously convince each participant that everyone else is on board, or almost on board.”

It seemed like most startups attempted to use this approach. Fortunately I knew all about it. I had seen this from the inside in prior years working at multiple startups (I was not in business development roles at these startups). This technique was specifically discussed and planned. There were other tricks, but I’ll get to those later.

It’s amazing how many people at large companies take these claims at face value. I often had to remind my peers and superiors that just because someone says they’re working with a major player doesn’t mean they are. That leaving a voicemail or sending an e-mail for someone at Google doesn’t mean that they’re “in partnership discussions” with these companies. If it’s not announced or if they don’t have a reference, then it doesn’t exist.

My point here isn’t to imply that startups are shady, though some are. My point is that you can’t always take things at face value. People at startups (especially the founders) believe in what they are doing. Many truly believe that they will eventually have the deal that they talked about. They believe that their product will do what they say it will, even though it isn’t built yet. They believe that they’ll eventually have the traffic they are promising. They just need that first deal to get it all going. The problem is that most big companies are not able to take a risk on a partner that hasn’t already proven their product. So startups are in a tough position.

Here are the tricks that I frequently saw startups using:

1) Ham and egging (as explained above). If there’s no partnership announcement or reference, then you should be skeptical.

2) Exaggerating revenue, subscribers, user base, unique visitors, etc. If they won’t show you actual traffic logs or put numbers in writing, then you should be skeptical. Confidentiality is not an excuse for not providing this information.

3) Exaggerating product capabilities. If they don’t have a fully functioning demo or don’t have it in operation with another partner,then you should be skeptical. You should insist on sending up an engineer to check out their operations.

4) “We’re going to be in town anyway, so we might as well meet in person for a demonstration.” This one always makes me laugh. While not terribly sleazy, it is annoying. I was in Dallas. No one is in Dallas “anyway” (at least not very often). I heard this from well over half of the startups trying to get in the door with us. This means I’ve literally heard this over 100 times. Don’t be pressured into wasting your time and that of your management team to meet with someone where there is no real opportunity just because “they’re going to be in town anyway.” If they tell you they’re going to be in town anyway the week of X and then tell you they can meet with you at anytime, then you know they’re lying. They should at least have the intelligence to block out a few time slots so it looks like they actually have some meetings.

Having said all of this, I did a lot of deals with startups and most of them worked out OK. The key is due diligence beyond that needed for larger potential partners. Hopefully this will help you in your future dealings with startups.

Your best best is sticking with the major players like Yahoo, Match, and eHarmony (personally I dislike eHarmony, but it works for a lot of people). Some of the niche sites are OK too, like JDate.

The original CompuServe service, first offered in 1979, was shut down this past week by its current owner, AOL.  The service, which provided its users with addresses such as 73402,3633 and was the first major online service, had seen the number of users dwindle in recent years.  At its height, the service boasted about having over half a million users simultaneously on line.

I remember Compuserve (and Prodigy, and eWorld, and AOL). I ran up some huge monthly bills on these services. But they were great for their time, except for Prodigy which sucked.

Farewell CompuServe.

We all make mistakes but doing things that are plainly unethical, that’s different. I found this on CrunchGear. Here’s what happened:

A site called The Daily Background found evidence that Belkin Bizdev guy, Michael Bayard, is paying folks 65 cents to write good things about Belkin routers.

Here’s Belkin’s response (also from CrunchGear):

We’ve acted swiftly to remove all associated postings from the Mechanical Turk system.

We’re working closely with our online channel partners to ensure that any reviews that may have been placed due to these postings have been removed.

I wouldn’t say that they fixed the problem. Yeah, they got rid of the reviews but they didn’t mention firing the employee (which I think should be a given for something this stupid and blatantly unethical), nor did they mention refunds for customers that may have purchased the products based on the false reviews.

The moral of the story – be careful what you do on the Internet.