Source: Fast Company

Some time ago, November 8, 2008 to be exact, I wrote a blog post, Wal-Mart: Alien Resurrection in the Local Food Movement. There I examined Wal-Marts announced goal to provide more local food within their stores. Along with many others, I raised the question: Is this real?  Or is it pure environmental marketing?

At the time, I was generous in my review of their efforts.

The traffic of readers into that post has been somewhat of a barometer to me of the the kick-up of PR activities from Walmart's Heritage Agriculture Program, their pilot local food sourcing program.  So I wasn't too surprised last week to see folks mulling around again when NPR carried the story, "WalMart Helps Small Farms Supply Local Food".

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NPR's story evoked deja vu.  We all agree on the vast impact Wal-Mart could have on the local food movement and, more importantly, the overall food distribution system in the U.S.   As NPR stated so well,

As the world's largest retailer, Wal-Mart greatly influences the products people buy at its own stores as well as other retailers. And a move toward locally grown produce by the retail powerhouse could impact the produce offerings at smaller grocers and supermarkets across the country.

More so than in 2008, the environment and food-miles are a growing part of mainstream consciousness.  And from a corporate perspective, Wal-Mart is deeply aware of the merits of local food sourcing in terms of a critical expense.  From NPR's well-balanced article,

A surprising percentage, on many crops, of the cost of the goods is the freight," says Ron McCormick, the head of Wal-Mart's Heritage Agriculture program.

Admittedly, the challenges are great for even a vast entity like WalMart: The market reality is that only a  minority of local farms have the food safety, legal and business infrastructure to interact with large-scale distributors and the likes of Wal-Mart.

NPR's story and detail rings far too similar to 2008 when Wal-Mart originally mounted their power behind the Heritage Agriculture program.  In fact there's so much deja vu, it feels like Bill Murray's Ground Hog Day movie.

How Punxsutawney Phil Ate My Locally Sourced Produce

Beleive me, I checked the alarm clock and date by my bed again. 

Just like in the movie, there's odd discrepancies that give you a clue that something's awry.  In July 2008,  a Wal-Mart press release cited that 20% of their local produce in summer season was from local sources.  And now here in June 2010, some two years later, NPR reports that Wal-mart says just 6% of its produce is grown in the same state it's sold.

Obviously, I cannot untwine the statistics for summer 2008 vs. WalMart's 2010 (full year? state average?) statistic. However, on the face of it, it looks like not much has happened.

My direct experience verifies little has happened to justify chest-thumping to at least my state within the national audience.  When i visit my local Walmart here in Ocoee, Florida, there's no evidence of any effort whatsoever.  I cannot find that local produce. If it is there, it is not labelled.  For instance, where's the local Zellwood corn that's so fabulous this time of year here in Florida?

Now, unlike a state like Connecticut, here in Florida, we have a long growing season: At least 8-10 different vegetables - cucumbers, eggplants, strawberries to peas and potatoes - many available for seven months of the year. 

But then perhaps Florida is not on WalMart's Strategic State Partners map for this project? It turns out Florida is not. (See second to last slide at Heritage Agricutlture's powerpoint.) It turns out Florida was not there two years ago either when I looked.

When is Bentonville Bustin' a Move toward Real Local Food Sourcing?

Maybe my skepticism is shared and the reason NPR ends its  article on the somewhat diplomatic note, "Wal-Mart won't say what its long-term goal is for the Heritage Agriculture program." 

When a program, such as the Heritage Agriculture Program, stays disconnected from corporate Bentonville's activities over nearly a 2-year span, I  find it difficult to believe it is more than a pure environmental marketing ploy. The same  powerpoint (seemingly not updated or scarsely so) resides on Wal-Mart's oft-used link to the Heritage Agriculture Program that I saw in 2008.

I'd welcome the  counter-views from those of you who live in the program's strategic states. Are you seeing the local, even state-based, food in your local Wal-Mart produce section?  

My friend Punxutawney Phil sez its a few years down the road.

Click to enlarge.   |    Enjoy    |   Just for fun.

Here I continue my summary describing some of the business efficiencies associated with prizes that make them so appealing and  the reasons they are knitting themselves into our business fabric. I'll also identify some of the players who stand to win the near-term “prizes”,namely, building the infrastructure itself for the new prize-driven economy itself.

In early 2009, Virtual Nerd, an online video-based math and sciences tutoring company, won the Olin Cup business plan competition and its $70,000 investment prize The company had entered the contest to help finance their start-up.  Why The NY Times  found the story particularly fascinating is that Virtual Nerd decided not to accept the award. 

This fascinated me as well:  What better way for a startup to announce its presence in the market, attract media attention as well initial customers, partners and financing than to enter a nationally prominent contest? (And yes- Virtual Nerd might have refused the $70.000 - but they ended up accepting a $250,000 loan from a private investor.)

No doubt- for risk-taking new startups, winning a high-visibility prize, is one of the most flamboyant, high yield  opportunities for both funding and publicity. Opportunities abound as new commercially-oriented hybrid prizes emerge. Within neglected disease research there is a phenomenal but little publicised prize: According to Cell Magazine, the Gates Foundation and four countries have donated $1.5 Bn for a new financial-marketing instrument, an Advanced Market Commitment (AMC), an extraordinary prize, whereby  the winning team earns a significant purchase order for a certain number of pnuemocaccal vaccines.

For large commercial, philanthropic organizations and soon federal agencies, prizes and contests are now seen as a means of injecting  the innovation of such startups (and the wider public) into a  too-often lumbering operational flow.

Open Innovation Prizes as Change Agents

Much of my excitement over the McKinsey report was in contemplating their thought-graphic, "Seven Ways that Prizes Deliver Change".  The graphic captures in one visual snapshot the immense range and power of prize psychology, from  identifying talent, quickening the pace of problem solving for a core societal or industry issue to influencing public perception, waking up the public imagination to  the often amazing ability of humans to solve seemingly impossible problems.

Source: McKinsey's 2009 "And the Winner is.." Report

If you consider the Ansari X PRIZE, it helps to concretize the seven changes: The Ansari X PRIZE, with the lofty goal of creating a reusable manned spacecraft, spurred the development of the private spaceflight industry, attracting 26 teams to invest more than $100 Mn in combined R&D -- an amount far more than the $10 Mn prize itself. 

The endeavor was of epic proportions: Burt Rutan's team achieved what had only been achieved previously by three of the world's most powerful countries.  It captured the press, and captured the public imagination: And while quite expensive now ( at $200,000/ticket) the public can await future trips to space. As Virgin Galactic's video below promotes- it's the advent of Space Tourism. This is something, NASA, from its government agency position, simply could not provide.

What an exciting way to create a market!

Whether you tuned into the Netflix Prize progression over a 3 year period or were fortunate to catch DARPA's Red Balloon Challenge last December , it's like watching the real-time game film of science and engineering's most passionate and talented players -- even though, so far,  we've had but blogs, tweets, and website leader boards to watch and comment on the action. (I'll talk more on media coverage in a bit...)

From the prize sponsor's viewpoint, enlisting participants of diverse talent outside their organization boundaries can lead to tremendous efficiencies. 

Business Hyper-Efficiences of Incentive-based Prizes

While McKinsey's report was focused on philanthropies, they make clear throughout that the basic principles of prize psychology and management apply to all forms of organizations. I've taken some liberties in expanding some their points to focus on four important bottom-line and productivity areas:

1. Lower R&D Costs by Outsourcing Development 

Most obviously, a prize contest opens the door to virtual team expansion,without adding salary and overhead.  No longer are companies constrained by their internal talent pool.  As we saw so well with the Netflix Prize and the 55,000 engineers in the competition, even a large prize can marshal the talents of a much a larger-dollar value workforce -- on demand - and directed at a specific critical problem.    

2. Potential for Decreased Human Resource Costs for Hiring World-Class Talent.

With a contest, a company obviously does not need to directly hire talent. However, a networked contest and its prize can serve to attract and identify The Best and the Brightest not only with greater certainty (only solvers hired) but from the immense global talent pool. What better "test" to give job  candidates than to place the toughest challenge in your industry in front of them? All of them?

Organizations like TopCoder in fact are using their prize contests to identify and place rarified expertise within the software industry.  As IdeaConnection, an open innovation service provider, writes near their online prize challenge submission form,

Life is getting simpler for R&D Departments who can articulate their innovation needs...

It's somewhat amazing to think - but organizations like  Innocentive , IdeaConnect and TopCoder  may be the  Creative Artists Agencies of the future -- identifying and managing key technical talent and wunderkin around different industry and societal problems.   

In fact,  I suspect the Class-A headhunters looking for world-class talent from agriculture, automotive, the arts to pharmaceuticals, check in with the prize committees listed in the appendix of McKinsey report. Broadcast search may well be the future preferred method for identifying technical excellence. (And, for that matter, what's to exclude challenges from including business and financial problem-sets to test the skills of next-generation C-level execs?)

3. Increased Speed & Liklihood of Finding Innovative Solutions

 This bears on the "Focus the Community" change effect in the McKinsey diagram. Open Innovation plays a core role here. A seminal 2007 paper, The Value of Openness in Scientific Problem Solving,  drew attention to the power of broadcast search, introducing 166 distinct scientific problem to outsiders, and showing nearly a 30% increase in solve-rate for problems  that had remained unsolved by well-known science firms. That's a pretty phenomenal result.

What a prestigious and high dollar prize adds to the open innovation process is critical marketing parameters: a deadline, rules of engagement, sometimes progress milestones (sustaining motivation and momentum) and built-in publicity.

 The Netflix Prize, directed at achieving a 10% improvement in a movie recommendation engine, demonstrated the collaborative power of a networked diverse group.  As Wired magazine described after interviewing participants, 

"The top two teams beat the challenge by combining teams and their algorithms into more complex algorithms incorporating everybody’s work. The more people joined, the more the resulting team’s score would increase.

This outcome drew attention particularly as the results fly seemingly in the face of the well-known Mythical Man-Month Limit, which describes the problems of adding head-count within the more traditional closed engineering group.

Diversity turns out to be a core asset in problem-solving. : The Harvard study showed winning solutions were more likely from problem-solvers whose core expertise was 6 disciplines away from the problem. Contests -where challenges are broadcast to a wide public and where interim methods and results can be shared among unlike minds -  increase innovative solutions.

Source: Steve Fennessy, Innocentive

Perhaps the most famous case illustrating diversity's role is the $20,000 Oil Spill Recovery Institute's challenge  to assist with one of the disastrous consequences of  the 1989 Exxon Valdez oil spill.  The technical challenge was to find a method to separate frozen oil from water.  Much to everyone's surprise - an Illinois chemist suggested the winning solution, one developed from the concrete industry. 

4. Built in Cost Controls and Risk Mitigation.

This is undoubtedly the most potent bottom line savings for prize-giving organizations. As success-contingent prizes are only paid with achievement of a defined goal, Peter Diamandis, Founder and Chairman of the X PRIZE Foundation has described them  as a form of "fixed cost science and engineering". Prizes shift risk from the prize sponsors to the competing participants- who themselves, as in the case of the Ansari X PRIZE, may invest much more than the prize value in the project.

Is There Anything Really New Here?

 Open Innovation as a business model and management construct is not new: Originating with Chesbrough's 2003 book Open Innovation: Researching a New Paradigm, the methods have been adopted by some of the world's largest best-known corporations such as Eli Lilly and Procter & Gamble. Principals fromEli Lilly,  an early adopter, founded Innocentive, one of the first company's leveraging incentive-based prizes on top of internet technology.

The new aspiration is that open innovation prizes may become a particularly furious business force when combined with Web 2.0's  open collaboration tools.

Source: EngadgetNothing so demonstrated the power of all elements working  together as DARPA's Red Balloon Challenge. Designed "to see whether social networking sites like Facebook and Twitter should be seen as credible sources of information" the challenge to identify the locations of 10 red balloons strewn across the U.S. was solved by an MIT team and its collaborators within a mere 9 hours.  The solution has made us all keenly aware of social networks role in identifying missing persons in a timely manner.

Net net: Social networks promise still another productivity multiplier to prize-driven markets. So when Forbes magazine somewhat cynically wrote about The Myth of Crowdsourcing as really being still the product of single virtuosos - I believe they somewhat missed the point: Yes, these are virtuosos participating, but the Netflix Prize result would not have occurred had not a significant and diverse number of these virtuosos been sharing and merging their diverse methods.

Who are the Market Makers?

With more federal agencies  soon to join the $2 Bn incentive-based prize market and with much smaller firms now realising the business efficiencies of prizes, particularly as the recessionary economy still struggles back, its likely the market is poised for considerably more growth.

Who will reap the benefits in creating the infrastructure of this growing Prize-Driven Economy?

The McKinsey report suggests there are at least four groups who will benefit, many of whom have years of experience in prize management :

1. Open Innovation Service Providers. Prize management consultancies and their software platforms are the first and foremost beneficiaries. McKinsey references Idea Crossing, Innocentive, NineSigma and Spigit as offering a wide realm of services, from strategic goal-setting to managing the (often non-trivial) contest logistics.



2. Contest Tracking Orgnaizations include BigCarrot.com and ChallengePost  who advertise and provide a software platform for these and smaller contests to prospective participants.  



3. Intellectual Property Law Firms. WHile the X PRIZE and the Netflix Prize are wonderful examples of masterfully navigating the IP rights of sponsors and participants alike, some commercial prize sponsors will find dividing and protecting IP to be a challenge, particularly where it involves point solution types prizes related to products. The complexities become apparent in reviewing the approaches of the service providers. NineSigma requires all submitters to  have issued patents or patent applications for their submitted technology. Innocentive protects participants by requiring their solution "seeker" companies to agree to intellectual property audits; should the company not make the award for a problem, the IP is not used.  



4. Public Relations Firms Skilled in Prize Contest Management. Mckinsey describes the case of  the Man Booker Prize,  a yearly contest to identify the best novel written within the Commonwealth of Nations. The visibility of the prize has greatly  benefited from the efforts of the PR agency involved,namely Colman Getty. There are clearly many other agencies with similar prize promotion expertise.
   

There's perhaps a fifth group yet to benefit: The Sci-Entertainment Media Group. For with such vast sums of money riding on highly-publicised prizes -- The Media is sure to follow.

Lights, Action, Science!

 Having spent a bit of time myself in the past sitting in the dark surrounded by oscilloscopes, it's inspiring to think that we may be living in an age where scientists and engineers can get the form of fame and fortune previously reserved only for the world's most elite athletes and celebrities. 

We're just missing the large Olympic stadium fan fare and tv cameras. But this too may not be far away. According to Cell Magazine, multiple television companies have approached the X PRIZE Foundation to document the next $10 Mn Automotive X Prize.

Will we soon see the likes of Discovery Communications (owners of the Science Channel)  cover world-riveting technical challenges, much as the social gaming world in the Electronic Sports World Cup?

What's more exciting is the likes of TED TV, Wolfram (inventor of Mathematica) and O'Reilly Media doing it. (After all, O'Reilly's mission includes "amplifying "faint signals" from the alpha geeks who are creating the future". )

With some 5.8 Million science and engineering researchers on the planet and a much larger base of teachers and next-generation student-scientists, as well as readers of Gizmodo, EnGadget and the many other high profile Sci-Tech blogs out there- it's clear there's an immense global audience for instilling excitement over some of the world's finest scientific and medical challenges. (More to it- not only are Nerds not  a minority but they include some of the highest net worth, influential people on the planet)

What do you think? Is an Electronic Sports World Cup format disrespectful of scientific endeavors? Would cheering scientific teams online while they pose solutions to climate change or a medical problem be distasteful? Or would scientists benefit from a bit of such Hollywoodization?

Related Posts:

Crowdsourcing + Open Innovation Fuel a Multi-Billion Prize Dollar Market (Part 1)

EPA Contest Seeks the Biggest (Kilowatt) Loser- GreenBiz News (April 27)

Six Marketing Lessions of the Netflix Crowdsourcing Experiment

Source: Chris AndersonDuring the past four years, some of the hottest Web 2.0 companies have been experimental labs for the Freemium business  model. A portmanteau of the words “free” and “premium”, freemium refers to giving a baseline version of your product or service away for free, while charging for upgraded features. Originally championed by NYC VC Fred Wilson in 2006, some VCs have found the business case for Freemium so compelling their portfolio investments aim primarily for freemium-based digital product startups. Why? The appeal of freemium is tremendous, promising  huge brand awareness, shorter sales cycles and, most prominently, a marked reduction in the cost of customer acquisition. The efficiencies are captured well by Wired's Chris Anderson, author of Free: The Future of a Radical Price in a blog post on freemium math,

“...you give away 99% of your product to sell 1%. The reason this makes sense is that for digital products, where the marginal cost is close to zero, the 99% costs you little and allows you to reach a huge market. So the 1% you convert, is 1% of a big number.”

The  success stories of freemium-based companies are now legendary: From Skype, Flickr, Evernote, EBay to even Intuit’s TurboTax.  Although less ballyhooed by the techno media, freemium has even worked for B2B companies such as Hoover’s and The Financial Times.

Recently I was approached by a successful online business advertising service provider, offering a listing service and additional lead-generating marketing features to law firms. While the provider adopted a "vintage freemium" model in 1998 common to business directories, it's competition is now on the rise. Under this duress, there is considerable disagreement within the company  as to whether  the entry-level  free listing service (and leads provided)  is helping or hindering their customer acquisition and revenue growth.

Challenges

For this B2B marketing services provider as with others of its kind, executing  successfully on a freemium model  has its challenges: 

Incomplete Profiles. First and foremost, when a business appears in a listing directory, it's well-known that the probability of gaining a lead, getting a click-through, is very dependent on the “richness” of the business profile in wooing the web visitor: Has the business completely filled in its profile? Included photos and videos? Do recommendations exist? Are white papers or demonstrations of expertise provided? Social media links? 

An industry-wide problem is that  freemium business directory listers, often busy professionals with little marketing training themselves, many times do not take the time to fully develop their profiles. 

Potemkin Village A second and related problem, a freemium model can lead to pockets of poorly documented listings, reducing the overall credibility of the directory service.  

Delayed Gratification. A third  challenge is posed by the inherent time delay of “reward” associated with directories offering business leads. These are  not at all like freemium-based social games  or application software where the freemium customer gets immediate gratification upon installing the application. Rather the leads benefit show up days, weeks or months later, making it difficult for the lister to establish a  “positive reinforcement bond" with the service provider. 

Total Population of Directory Users. A fourth and formidable challenge for business advertising directories is that the service is only as good as the total number (and quality) of leads the freemium service provider can provide  customer companies. Hence, as web visitor bait, we see the auto-populating of directories with company names. But as we see only too often (MerchantCircle, anyone?) - this can back-fire, enhancing the Potemkin Village effect.

In the case of the law firm directory provider, the frustration is that while less than 1% of  their Freemium legal firm customers go on to upgrade, among those that do there is an 80% renewal rate. Their core question was: How could the company increase conversions to paid premium services?

In a freemium model, there are two obvious paths to increase paid-for customer revenue: (1) increase the total freemium customer base size which you will know will convert at X% into paid customers or (2) proactively focus on increasing the conversion rate of your existing customer base.

Here I’m principally going to discuss the second method, increasing the conversion rate as I’m assuming the business directory provider already has a fairly good installed base of freemium customers-- therefore the risks are less. Here are at least six questions that the service provider using a freemium model can ask itself to optimise conversion.

 1. Are you flaunting the success of your paid-for customer plans to increase the urgency of upgrading?

Source: FashionFame.com

In the case of the law firm listing service, the 80% renewal rate, while a huge marketing asset, was not mentioned on their website. (!) And yet- if a no-fee customer would see that wonderful statistic, they could not help but think, "Gee- my company may be a newbie to this service, but, clearly, the full sets of services is  benefiting the majority of firms using it -- some of which may be my competitors."

2. Are you promiscuously offering  "Upgrade Everyware" with every customer marketing interaction? 

Source: Adapted from Adam GreenfieldSuccessful users of freemium seed “Upgrade Now” messages on their web sites, within customer account areas, in email newsletters, in customer service and support calls and emails at every opportunity – Everywhere Everyware.  The classic case of a successful promiscuous upgrade strategy is GoDaddy.

 3. Are you “Edu-Marketing” to Freemium users, cluing them into the successful mechanisms used by your best practice premium customers?

click to sourceWhile the law firm directory has great recommendations on their web site from pay-for customers, what is missing from the testimonials is direct reference to the specific paid-for services contributing to the customer’s lead success.  So if a specific feature, eg.   the addition of a video or use of a social media sharing feature, contributed to a  subscriber’s success –  the inclusion of these details bridges the gap in the freemium user’s mind, allowing them to see beyond their current tunnel-vision view.

Obviously, this approach has the additional benefit of educating premium customers as well.

4. Do you maintain a fast (relentless) pace in introducing new “Pay For” features? 

Source: Gizmodo via Arstechnica.comPerhaps nothing creates a feeling of increased trust in a marketing partner as well as a sense of  “missing out” among non-pay partners than introducing new, highly desirable  features.  Evernote, a freemium-based supplier of  online memory aid tools, ascribes much of its success to the steady introduction of new features .

I particularly like their approach as it’s a triple-edged sword: New pay-for features not only serve as marketing morsels to entice Freemium users to the pay-for service but can contribute to customer retention among paid users. Further,  by  introducing new features into the premium service, a company has the potential to “raise the bar” on freemium competitors, commoditizing competitor freemium services by recycling "last version" premium services into "now version" freemium offerings.

5. Is a  Customer Reward Referral Program appropriate for your market? 

Source: David Chin OnlineWhile the data isn't completely in on this approach for revenue growth, only customer growth, I believe it will prove relevant so describe it here.  

One company that has effectively used an “increase the freemium base size” strategy is DropBox, the online storage and file-sharing company.  As reported in GigaOm, DropBox dramatically iincreased their customer growth (now up to 4 Mn as of this writing) by dropping their search marketing strategy for customer acquisition and instead focusing on incentivizing  customer referrals,  giving away additional storage to users who provide referrals which install the product.

This tactic has legs especially in our shiny new social sharing world: Now customers have the choice of directly paying for premium services or “paying” with referrals.

As I started off here, one major caveat here is that I do not know that this tact has contributed to growth in for-pay customers of DropBox.  On the one hand, one would expect some cannibalising of "for pay" customer conversions as a result of offering more freemium.  On the other hand, even with some dimunition in conversion percentage, one would expect an increase in the revenue-side as some customers need for increased storage space outdistances their willingness to rely on iffy  "referral" storage space.

6. Have you considered a mid-tier priced “jumpstart” service? 

Source: Australian ParkourAssoc.The problem for many freemium-based companies is getting their business customers to jump the gap from “free” to often a much higher priced product.  In the case of our law firm advertising directory, users have a choice of “free” vs. $200/month, a substantial price gap.  One obvious solution is to introduce a lower priced service, peeling off a set of the premium service features.  However, this by itself may not address one of the B2B Freemium challenges, namely, that busy professionals do not have the time to set up their accounts properly to receive the benefits.

Some potential is suggested by  Google's new Local Merchant program.  Aimed at former small business customers of Google Adwords. Google identified that many small businesses, despite paying thousands of dollars per month, were not reaping the benefits, principally due to lack of knowledge of SEO and keyword marketing.  Observing the rapid drop-off rates of these small business customers (and really wanting to hold onto the local search market), Google has recently offered a fixed and lower-priced product where  first-tier support staff “fill the knowledge gap” by setting up both the small business’s keywords for them. This holds a lesson for the freemium-to-premium business directory gap as well:  By introducing a sub-set of premium services of high benefit but relatively low company cost, a  directory supplier can bring a "mini-premium"  experience to a larger group of its freemium business users.  Collect some revenue today and win more trust for the higher-priced tier service tomorrow.

Unfortunately, I know of no magic parkour-like freemium to premium gap jumps  that avoid the sweat work of market testing and scaling the rows and columns of an excel spreadsheet, looking at marketing and development costs of new marketing and product offerings-- all tracked against free customers base growth and  conversion rate data. What's a good conversion rate? As Chris Anderson pointed out in Freemium Math: What's the Right Conversion Percentage? the answer varies from market to market.

In the End...

click to sourceHave I taken the coward's way out by mostly avoiding the  "Increase the freemium base size" approach to increase revenue even while conversions stay fixed? Yes. But I've got my reasons.

The chicken-vs-egg choice of  enlarging the freemium base vs. increasing paid conversions is not unlike the final scene in the movie, "The Big Lebowski." [Spoiler Alert]  Standing on a cliff, face to the wind, John Goodman starts to cast the cremated  ashes of his friend Donny (Steve Buscemi) into the ocean. But a big gust of wind foils his intent, blowing the ashes to coat the onlooking Jeff Bridges standing behind him.  Had Goodman been facing back to the sea and cast some test ashes over his shoulder, he would have foreseen the outcome. (Although it would have been less hilarious.) 

As in this scene (and offering me a great deal of artistic license here ;-))   for companies already invested in Freemium and with an established base,  facing your existent base, not the new wide sea of to-be-acquired customers, offers you the best view of what’s most likely to happen next. Not only do you have a ready set of customers to upsell to, but by focusing on pay-for conversions you’ll attain a great deal of knowledge about the exact premium features that your customers are willing to pay for. (Hopefully, without sacrificing your big toe. ;-))

Related Articles

Case Studies in Freemium: Pandora, DropBox, Evernote, Automattic and MailChimp (GigaOm)

Financial Times Goes After Younguns with Foursquare Deal  (Silicon Valley Insider, 4/09/2010)

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As I wrote in an earlier post, nothing so woke me up to the potential value of contests and prizes in changing the rules of business-as-we-know-it  as the NetFlix Prize, attracting over 51,000 contestants with the hope to win $1 Mn for improving a movie recommendation engine. There’s consensus that NetFlix leveraged that investment extremely well in terms of received R&D benefit, marketing community brand building and much more.  In fact, there are marketing lessons in the NetFlix Prize that any prize sponsor or challenge seeking organization can learn from.

According to a recent post on the TechPresident blog, the latent potential of such success-contingent prizes has not been lost on the White House which issued a directive on open innovation in January.  Two weeks ago, the Office of Management and Budget  released guidance to federal agencies on how they could legally arrange contests to seek ideas  for using technology to promote innovation, open government and other national priorities. The message is clear: “Go forth and crowdsource.”

To facilitate the agencies’ action on this, the White House is launching  a public website within the next 4 months which agencies can use to “advertise” and promote their challenges  Adding momentum to the initiative, Michelle Obama simultaneously launched her “Apps for Healthy Kids” contest, part of her Let’s Move campaign.  The contest invites software designers, game developers and others to build fun and engaging tools to motivate children to eat better and engage in physical activity. It has  built-in lesson to agencies watching too as the contest design requires using the USDA nutrition data set. What a clever and constructive way to build a better user interface to what would otherwise be fairly dry and abstract data to kids.

Starting with a great example is smart, but how will federal agencies new to this learn the intricacies of both crowdsourcing and contests? (Obviously, DARPA, NASA and a few others within the fold have talents to share.)

Enter McKinsey's Roadmap for Understanding Prizes

For those seeking to understand how to successfully construct prize contests and challenges, the OMB memo references a 2009 McKinsey study “And the Winner is…Capturing the Promise of Philanthropic Prizes” . This  124 page report describes McKinsey’s research, case studies, a rather comprehensive database of prizes as well as  their future potential. But what makes the report extremely valuable is that it leverages the knowledge of sponsors and administrators of some of the best known and successful large-scale prizes, including interviews with experts from NetFlix, The World Food Prize, the X Prize and many others.

The Attention Rivetter: A  $1-2 Bn Big Prize Market

What’s capturing a bit of attention right now is that McKinsey estimates there’s a $1- 2 Bn Prize market today in the U.S. – and it’s growing.  They point out that the dollar amount for prizes over $100,000 has tripled in the last decade to $375 million a year, expanding particularly in the area of incentive-induced prizes.

Now with part of  federal agency budgets to be unleashed soon, there’s more money to add to the prize pot. As Thomas Kalil, Deputy Director for Policy at the Office of Science and Technology Policy at the  June 2009 incentive2innovate conference  reminded conference attendees,

When you consider that the government invests a total of $150 billion in research and development, there’s a bit more room for experiment in this area.

Starting Point: What Types of Prizes Exist?

One of the more useful thought tools within the"And the Winner is..." report  is a description and analysis of  six archetypal prize types. ( The diagram below modifies the original McKinsey exhibit to include some of their examples for each prize category.)

Source: McKinsey's "And the Winner is...." Report

We are all perhaps most familiar with their "Exemplar" form of prize, one, like the Nobel prize, which sets a standard for excellence in a field. But there are newer, less familiar prize forms here, ranging from the narrow  "Point Solution" (eg. NetFlix prize) in which a specific challenging problem is posed to the broader "Market Stimulation" type, the canonical example of which is the X Prize portfolio, in which real world market conditions are emulated inside the challenge.  Perhaps nothing so raised public perception of the raw power of prize development as the $10 million Ansari X PRIZE, which helped ignite the development of the private spaceflight industry.

The diagram is great mind food for considering the types of prizes your own organization might consider, depending upon your goal.

What prize can your organization offer? Will your organization build and implement prizes? Or will your organization seek to win one of the prizes to the benefit of your brand’s value?

If I’ve inspired you to read McKinsey's “And the Winner is…” report, that's great. That was one my goals. But bear in mind that while there's a groundswell of interest in prize mechanisms to address complex problems and identify emerging markets and a growing corpus of knowledge, the report makes clear that the intricacies of successful execution are non-trivial.

In my next post, I will continue this topic, summarizing some of the business efficiencies associated with prizes that are wooing government as well as commercial ventures, despite the complexities. I'll also identify some of the pre-game players who stand to win one of the near-term “prizes”,namely, building the infrastructure itself for the new prize-driven government and commercial markets.

As Valeria Maltoni (@ConversationAge) put it so well in a recent post describing the increasing adoption of social media "marketers are finally putting their money where our conversation has been -- integrating social with their activities".

Even so, as a marketing consultant to smaller companies, I am approached by client firms that are still resistant to the "sea change" in the air. Frankly, some are still operating with 2007 market data (and schemas) in their heads. So it is I find myself called into executive strategy briefings and staff meetings and given a short time slot to plead the case for adopting social media.

Perhaps you know the drill?  Fifteen "make it or break it" minutes to stand and present, survive a firing line of questions and, hopefully, actually survive long enough to open the door to discussing the company's own social media strategy. Catch: There's not enough time to show the Social Media Revolution video.

What I've found works very well in such situations is to have an opening set of market research slides, "schema-busting" slides I call them, which set a big picture marketing context, highlighting that our former Google-centric view of the online universe of the past decade is changing.

Yes- I refer to the ROI of Dell's social media use, Zappos, the brilliant customer service case studies of Comcast, the product innovation crowdsourcing by Starbucks, the even more brilliant crowdsourcing experiment by NetFlix  and many others. However, too often, there can be a NIMI (Not-in-My-Industry) attitude that raises objections. So I launch usually with a more macro view of recent significant data. The sole purpose of these schema busters is to establish that significant changes are underfoot which require an alteration of the current marketing strategy, a realization of that "Ignore at your own peril" moment.

After all, why else would I be advocating a marketing strategy change?

Lately, I've had good results using the following slides.

Slide 1.

Social Media Sites are now among some off the top web properties. Dramatic changes have taken place since 2007.

Compete data | Erik Qualman's Socialnomics slideshare

There's no sense in being taken down on the first serve. As they say, begin on an unassailable point. Starting off with  Compete, Quantcast or Nielsen data -  authoritative market and web researchers - does just that. So I start by borrowing this slide from Erik Qualman's Socialnomics slideshare which shows Compete data to show that social media has changed significantly the top visited places on the net - places where people are sharing photos, product recommendations and links to articles with friends and colleagues. (Perhaps not the best time to point out that  'adultfriendfinder' will soon be replaced by Chatroullete though.)

This simple slide forces the conclusion " Dang, major tectonic shifts  have happened since 2007." More importantly, it forces the question," Maybe we should revisit our strategy?"

Slide 2.

People online now spend 7 hours per month "friendcasting".

This is more time than spent on search engines Google & Yahoo, as well as MSN and YouTube combined.

In a sense there's nothing really shattering about the data actually as it reinforces what we've always known, Word of Mouth is the most powerful recommendation driver.

You can make a similar point by referencing Compete's latest data in terms of "attentional time" market share, shown  in a more visual format.

Slide 3.

Facebook Commands More "Attentional time" Market Share than Google or YahooSource: MarketingCharts, Feb 2010

What's cool about these last two slides is that they now set the stage for you to raise the question: Would you like your company to be part of this 7 hour per month conversation, one which is rising in attentional market share? Be part of the shared photos? The shared articles? The product reviews and recommendations?

Slide 4

Facebook is Besting Google in Driving Traffic to the main portal sites.

Based on data from Compete, Feb 2010

Compete Inc. and their director of online media and search Jessica Ong ignited a powder keg in revealing this data during a late February interview with the San Francisco Chronicle,

I say "powder keg" as this data ignited considerable reaction from within the SEO community. So be advised, Search and SEO aficionados within your audience may also take issue, especially as that group commands the lion's share of the digital marketing spend today. (It may help with any tumult here to say, to those who dispute that Google competes with Facebook and Twitter that more recently Google lists both as competitors in their latest 10-K report. )

Slide 5.

Social Networking is Passing Search in Driving Referral Traffic

Source: Compete January 2010

I first saw this slide just days ago during an enlightening presentation by Gigya CEO, David Yovanno at Gigya's "Social is The Next Search" webinar. While I've not actually used this slide yet, I will as it really delivers the coup de grace. In fact, if you only have one slide to show - this is it.

That social sharing is outdistancing search in referral traffic was pointed out earlier in a prescient blog post by ReadWriteWeb's Marshall Kirkpatrick. He wrote

What would it mean if social networking over-took search in terms of sheer visits online? It would mark a sea-change on the internet. No longer would our dominant use of the web be seeking out web-pages built by HTML web-masters! Now we would all be publishing tiny little updates that perhaps only our friends and family care about. We'd be subscribing, more than we ever did by RSS, to syndicated updates from organizations of interest, large and small.

There's no doubt: there's an increasing intersection between search and social sharing. But perhaps it isn't that people are changing the way they search,  so much as their friends are changing the way they find things. One of the more important questions you can open up at this point: Is the digital marketing spend allocation for social media vs search adjusted to these new market realities?

So there you have it: Five slides that can all be understood in five minutes. (Isn't it odd that we have to unroll the past conceptions, bust the old 2007 mental schemas, in order to see the best way to meet the future?)

What slides do you find work best to open the door to deeper social media discussions?

Postscript: My title notwithstanding, I am not advocating a wholesale revision of the search vs social media budgets planned. Just saying: The relative sizes may not be in line with the most recent 4-6 month marketing data.

In brief, Dan's research showed that while articles that use the word “Facebook” in their title get shared more often than the average story on both Facebook and Twitter, stories that mention “Twitter” actually get shared less on Facebook. In contrast, Twitter stories shared on Twitter led to a 300% increase in retweets,

Tribal Vanities

In a sense, it's no surprise: These are two very different cultures: The age range skews toward a younger population on Facebook which likes the all-inclusive web services environment.  Technorati's 2009 State of the Blogosphere report shows a very high percentage of bloggers (73%) tend to use Twitter, relative to the total internet population as a whole (14%). 

If we look at Trendistic data of "Twitter" vs "Facebook" mentions on Twitter, the base level of Twitter talk is considerably higher than that surrounding Facebooky subjects.

Conversely, looking at Facebook's data, we see a similar self-obsession with Facebook-related terms.

Facebook Statistics: "Twitter" vs."Facebook" data from their "Top 15 Status Terms of 2009"

Source: Facebook Data Teams Notes

Interestingly, during the Twitter hey days of March-May 2009, Facebookers themselves chatted up Twitter.

Seeking Agnostics: Key Social Bookmarking & Social News Sites

To look at the interest in "Facebook" vs "Twitter" in a more agnostic setting, I reviewd the trends in Twitter and Facebook as keywords and tags on two of the larger social bookmarking and social news sharing sites, Digg and Delicious. 

Recognised as among the most popular social sharing platforms, by latest counts, the number of inbound links for Digg is 383,598,000 and that for Delicious is 427,665, together totally more than inbound links for Twitter (760,750,806).

A set of social bookmarks contains in essence a web users's shared library of interests and topics they deem worthy and exciting  enough to share with others.  Social bookmarks can be used as indicators of what topics people think are important to understand and have some present or future value, perhaps for an upcoming research project sorting out this fast paced new social media landscape, and sharing with others. For bloggers and webmasters, social bookmarks and their curators play a special role in increasing SEO, driving traffic to their blog posts and web sites. In a broader (but perhaps less agreed on) sense, as social media watchers, the frequency of Twitter vs Facebook social bookmarking can also be viewed as a rough indicator of our personal bets on the "next  great social networking platform".

The figure below compares two Digg searches on Facebook vs Twitter performed in late February 2010, excluding the competing term in order to pull out posts that focused primarily on one service vs. general social media articles. Digg's count  for "Facebook" totals some 74,624 articles vs "Twitter" related articles at 72,412.  These are actually quite comparable, given plus or minue 2000 posts, well within a single month's worth of data. That said, a salient feature of the graphs is that the mentions for Facebook appear to still be on the rise, while those for Twitter are levelling.

What's of interest considering Zarella's data is the difference in Diggs, an indicator of the story's popularity.  For the 4 year time period sampled, Facebook-related posts which resulted in more than 5000+ Diggs outnumbers those for Twitter by a factor of five, roughly corresponding to the relative size in Facebook and Twitter active memberships. (According to Compete, Facebook attracted approximately 134 million unique visitors in January. Twitter had 23.5 million unique visitors for the month.) For Diggs exceeding 500+ and 1000+, Facebook bests Twitter by nearly twice as many.

Well, you say, perhaps not so surprising. Digg is not truly agnostic with its alliance since mid-2009 with Facebook Connect.

So let's take a look at the data from Delicious users. Used for private as well as social sharing by researchers and others, with a strong historical bent toward technology topics, this gives us a more "geeks-eye" view on the interest in these two social networking sites.

The figure below shows the trends in social bookmarks for articles posted and tagged "Twitter" or "Facebook", where articles tagged both are eliminated in the search as well as login and home domains, where the bookmarks would be biased toward the user population difference size of these two social networks. The exact searches made can be seen on these pages: Delicious Facebook search and Delicious Twitter search 

Comparing "Twitter" to "Facebook" tagged postings, we find over 581,072 results for Twitter and 388,472 for Facebook. "Twitter" tagged postings best "Facebook" postings by over 49% and still today exceed considerably in posted bookmarks per day. However,  much as in the Digg data, we see the interest in Twitter is flattening to falling, while Facebook interest still seems on the rise.

Other Social Bookmarking sites.  The table below shows search data for several other well-known social bookmarking sites.  These are ordered according to inbound links, the highest sites appearing first. (Caution in comparing these: While attempts were made to get the running total, usually the default, the time horizons of each site can be markedly different. For instance, Yahoo Buzz seems to be offering a much narrower time window. Also- except for Reddit, noted with *, all counts were unfiltered so there is overlap in the tagged stories. Technorati is obviously only counting the most influential blogs.)

These are but a small sampling of the over 250+ social bookmarking sites, but it's clear that the more technology-oriented sites show a marked interest in Twitter.

What Does it All Mean?

Perhaps the most surprising aspect of this data is that interest as gauged by social bookmarking and sociallnews sites reflects so even an interest in the two social networking platforms, and this despite Facebookers outnumbering Twitterers by over five times.

During the period of much of these graphs (2009) we 've seen Facebook take-on many of Twitter's best-appreciated features: the ability to tag friends or companies they mention in status updates, commenting and real-time updates. Ironically- many of those Delicios and digg postings were about Facebook taking on Twitter features.

The preliminary data indicating a rise in Facebook and levelling off of Twitter interest is consistent with the maturing of both social media and Facebook in particular. A great deal of the ongoing conversation on social networks concerns social media's use for business. As Facebook positions itself as a bonafide business promotions channel, the fact that Facebook's advertising business model seems to be working certainly increases business confidence that its a viable  platform for conducting business.   The bigger its tribe grows, the more stories (written by more people) it has to share with more people. And interest in how to build great Facebook landing pages,pay-to-learn webinars and podcasts, building great Facebook landing pages and advertising opportunities all swell as the social media consultants see a rising tide of new social media customers.

It will be interesting to see the next shoe to drop, as there are  rumors of Facebook including more support of external sites and page bookmarks on the Dashboard in Q2 2010. That may have profound implications for the future of many of these social bookmarking sites, particularly as it addresses one of the key shortcomings of Facebook to many - its closed garden wall architecture.

Twitter's linchpin? That garden wall is anathema to many of the free-spirited freelancers and some of the blogsphere's most prolific, content creators, many of whom built their wide audience through social bookmarking sites and Twitter. And this is, in the end, the content we love to share. Perhaps some hint is afforded by looking at the Technorati data, showing over 1000 more influential blog sites tagged "Twitter" as opposed to "Facebook".  While Facebook is still hidden behind its wall, it seems these influential blog sites - along with WordPress, Tumblr and Posterous - may be the best friends Twitter has.

Postscript: This blog author is a fairly frequent user of Twitter and Delicious.

Forum for the Future's "Paint the Town Green" Report

Since the start of the sustainability movement in the 80s, we've seen that products resulting from that 99% perspiration  "have a story" to tell. Legendary are brand stories like the waste reduction program at carpet-maker Interface, Aveda's stories of skin care products sourced from indigenous people and Jeffrey Hollander's book, What Matters Most, describing Seventh Generation's trek toward creating toxin-free household cleaning products.

So I was pretty excited to find The Forum for the Future's recently published report, Paint the Town Green. For here was a new product announcement  accompanied with its full story.

The culmination of a 3 year U.K.-based research project between ICI Paints AkzoNobel, a paint manufacturer and supplier, Carillion, a paint specifier, and Forum for the Future, an organization of sustainability experts, this is one of the most understandable, colorful and enjoyable reports on sustainable product innovation I've encountered. 

For decision-makers in R&D, sustainability innovators and their marketers alike,  the report details  the vision, processes, cradle-to-grave product lifecycle analysis and business benefits of the team's trek  --  all in a compact 27 pages.

Yes, it's about paint

the pigment-emulsified  liquid, some billion gallons of which  U.S. commercial and residential owners brush, roll, pour and spray over all forms of surfaces annually. (so now you see why it's  a "colorful"report ;-))

Like most man-made materials, the environmental issues associated with conventional paint are many, ranging from VOC emissions affecting human health and climate, ingredients requiring high fossil fuel use, energy-intensive manufacturing processes, voluminous water use for cleanup to package and product disposal issues for landfills.  (If you are a manufacturer in another industry, do not let this dissuade you - for this is a story of not only how sustainable products can be designed but also marketed.)

Partners of this project set out to create a more sustainable paint - ideally one which was emission-free.  By setting the bar high, the  project partners achieved numerous product and process innovations along the way. To name but a few of these:

• A new almost "VOC-free" paint line with carbon and water-use footprints reduced each by 50 percent.

• For construction customers, development of an environmental wash system for cleaning paint equipment on site, avoiding contamination into drain systems.

• For all end-use customers,  launch of a Take-Back Service allows for paint cans avoiding land-fill use (and in the U.K., associated land-fill charges)

• A new recycling process which allows cans from the Take-Back service to be redeployed  by the manufacturer for use in new paint cans.

• A new closed-loop water process in manufacturing allowing water reclamation of equipment cleaning water for use in new paint

While the paint manufacturer benefited in bottom-line cost savings and competitive position, my reading recommendation relates to the marketing value of this report.

What Marketing Lessons Can Sustainable Product Innovators Learn from it?

The Forum for the Future's report holds five key lessons for sustainability innovators:

1. Market your  Multidisciplinary Team. The involvment of partners and suppliers from all phases of the product lifecycle clearly enriched the wide set of innovative solutions  delivered.  In doing this, both commercial and residential  customers are more readily assured that the manufacturer has a keen knowledge of the product's A-to-Z environnmental context.
2. Provide Graphical Authenticity of the Team's Involvement and Milestones.  Replete with graphical illustrations, from project artifacts, hand-hewn concept drawings, colorful marketing flowcharts to finished marketing materials, the report brings to life the early thinking and explorations of the design team. (Too often I read sustainability reports where the R&D process seems distant and abstracted from the final product. Not here.)
3. Discuss Forward-Looking Projects. Much as vendors disclose to key clients their product futures to increase confidence, the report discusses midstream and future projects - again increasing confidence that this is no "one-off" venture, but that  the vendor and partners have incorporated sustainable practices into their planning and operations.
4. Redeploy R&D documents as part of the Product's Marketing Story. The report provides a detailed "behind the scenes" look at the product's innovation.
5. Time the Release of  the "Story" upon Product Announcement.

Sure, sustainable product launches need  eco-conscious product names and easy-to-read tables allowing today's educated customers to see and compare specifications. But smart companies and their marketers are also learning that disclosing the efforts behind a brand's environmental design, revealing the R&D process itself - the story, is one of the best uses of marketing.

Reading the report - I couldn't help but think: What if all product packaging had a simple written statement?

Read the full sustainability story behind this product at www.XXXX.com. 

As potential customers scanned that into their iPhones and BlackBerries, would your product have a sustainability story to tell?  How would that story compare to your competitor's?