For those who really still don’t get the movement, you owe it to yourself to watch this video. It is a bit long, but be patient – the payoff is worth it. This is done in the style of Lessig and Dick Hardt. Click the video clip below to play it.

Thanks to Michael Wesch, Assistant Professor of Cultural Anthropology at Kansas State University for putting this gem together.

Cheers.

Event though it isn’t really considered a “bellwether” any longer, the “Black Friday” yardstick that we’ve used consistently for years is way outmoded.

I’m certainly not a retail guru by any stretch of the imagination, but I know what I see.

Consider this quote:

According to ShopperTrak RCT Corp., which tracks total sales at more than 45,000 mall-based retail outlets, total sales rose 6 percent to $8.96 billion on Friday, the start of the holiday shopping season, compared to the same day a year ago.

If I want a reliable pulse of the economy, shopping habits, etc., I do what most economists fail to do. I open my eyes and observe the females in my family. This includes my wife, mother, mother-in-law, sisters-in-law, cousins, etc. None of them went shopping within a brick-and-mortar retail outlet immediately after digesting their Thanksgiving meal. Nope. They all bought online.

In fact, my wife has been busy snapping up online Christmas deals for the past couple of months. Her spending activity doesn’t factor into the typical “Black Friday” report. The only way to reliably measure “holiday spending” would be to somehow measure it all year long – because that is the flexibility that the Internet affords consumers. Most Internet shoppers did not wake up on Friday, November 24th and run to their computers to start buying Christmas gifts.  That is an antiquated consumer habit best left to offline shoppers.
There are an estimated 140-150M Internet users here within the United States. I would venture to say that a large number of these people have bought holiday gifts online.

I ventured into a Toys-R-Us store today, only to return something that we ordered for my daughter that arrived broken. This was the first time I had been “out there” during the holiday rush in at least 6 or 7 years. I was quickly reminded of the reasons why I buy almost entirely online. I also know that I am not alone in my thinking.

There are now more “mobile” Internet users than “wired” users in Japan. More food for thought – this transformation is quickly happening here within the U.S. as well.

Cheers.

I’m fresh off the yearly Thanksgiving eating binge, so bear with me as I attempt to string together a few cohesive words.

It isn’t just the revenues that are impressive. Consider the ever-expanding demographic. When most people think about “gamers”, they envision some 14 year old kid plopped on the sofa, eyes glazed over, and unable to tell you who the President of the United States is. That image couldn’t be further from the truth.

• According to the Entertainment Software Association (ESA), the average age of the gamer is thirty-three (33.) In other words, old enough to have a kid in middle school and a mortgage (however, not quite old enough to run for the office of President of the United States.)
• Women over the age of 18 make up 30% of the market, while boys under the age of 17 only comprise 23% – bet ya didn’t know that!
• 25% of people over the age of 50 play video games

Born in the 60s, and growing up in the 70s, I still remember the day the local pizza parlor (yes, that’s what we called them back then) carted off the pinball machine in favor of the new Asteroids coin-op unit. My generation is nearly a decade older than the average gamer. Keep that in mind. The average gamer doesn’t remember phones with cords, and doesn’t remember not having electronic games within the home. But they are of a very mature age.

The line between Hollywood films and video games has also gotten significantly blurrier over the past decade. Whereas game publishers used to turn successful movies into video games, Hollywood now trolls the shelves at Wal-Mart for the latest hit games, all in an effort to bring them to the big screen.

Even academia is getting in on the action. Consider this 50 question examination that I managed to come across. This is from the University of Teesside’s (in the U.K.) School of Computing. The course is called “COM1006: The History of Games.” There are at least a dozen schools that have cropped up dedicated to pumping out graduates armed with the latest knowledge in 3D graphic design and game engine mechanics (examples: Fullsail and Guild Hall at SMU). Even the overly commercial DeVry is getting in on the action.

While the costs to produce a hit game can easily top $10M, a hit can generate a significant fortune. Take John Madden’s storied gaming classic, Madden Football. In 17+ years, EA Games has sold more than 53 million units. The recently released Madden ’07 topped 2 million units, earning EA Games a treasure chest worth over $100M in the first week alone. Microsoft’s Halo 2 earned $125M in the first 24 hours after it was released in 2004. While a $10M investment may sound like a lot to Georgia investors, I should point out that there are plenty of opportunities for lower-cost indie (independent) efforts, not to mention cheaper plays within the wireless gaming market.

Got your attention yet?

So, let’s turn the focus a little closer to home – Georgia. There are a number of reasons why I personally think that Georgia is primed to experience a veritable explosion in the gaming sector:

1. Initial wave of startups are here
2. Atlanta has a large creative/design community that is now gearing up for gaming
3. Support infrastructure is beginning to appear
4. Research centers are popping up
5. Atlanta can capitalize on its position within the wireless/mobile space

Initial wave of startups, early players are here

The initial wave of gaming companies are now here. These range from gaming hosting providers to publishers and studios.

Game Hosting Networks

• Super Computer Inc / Super Computer International, Inc. (“SCI”), founded in early 2002, provides a high performance clustered video gaming infrastructure (“Jupiter Cluster”) that enables various vertical market leaders to provide a highly scalable and customizable video gaming platform to the online gaming community.

Mobile Game Studios

• Blue Heat: Formed in 2001, Blue Heat is a leading developer of games for mobile platforms.
• Tapscore: Tapscore Mobile creates innovative game titles for mobile devices.

PC and Console Game Studios

• 404 Gaming: 404 Gaming is working on a HipHop MMO Game.
• Mergato Studios: Mergato Studios is a dynamic new independent game development studio that is focused on producing outstanding fantasy titles.
• Flying Rock Enterprises: Ace of Angels™, produced by Flying Rock Enterprises, is a space fighter simulator, that allows you to fight head to head against others across the Internet.
• Kaneva: Kaneva is focus on providing digital entertainment over the Internet, in the area of interactive video games and digital media.
• CosmiQ – MMO startup
• Rapid Reality: RapidReality is working on three MMO’s, The Chronicles, Machines, Survival Instict.
• Hirez Studios: Hi-Rez Studios is a newly founded independent game developer working on a next generation massively multiplayer online (MMO) title for the PC.
• Heuristic Park: Founded by the designer of the most popular Wizardry PC Games, focused on developing RPGs.
• GameTap: Turner’s newest venture into providing an online retro-game portal.
• X-Factory – Xbox startup

Web Based Gaming

• Cartoon Network – Interactive: Plenty of online games.
• Macquarium: Macquarium has incubated a variety of technologies.
• StudioCom: Creates dynamic online experiences for clients.
• CokeStudios: A web-based MMO game for members to make music, chat, own a place, etc.
• Big Fun – Founded by the remains of Turner Interactive, focused on web games.

Motion Capture, Peripherals, and other Sundries

• Giant Studios: Giant Studios, an animation and motion capture production company, is in the business of providing services to the entertainment industry while developing its own library of original content and proprietary motion capture technology.
• SimCraft: The ultimate tactile advance is an experience that provides full body stimulation; made possible by a motion simulator.
• Playmotion: Interact with virtual environments simply by using your shadow against the wall – very cool stuff here.

Game Music Studios

• DARP Studios DARP Studios is a full service, world class studio. DARP, the brainchild of producer Dallas Austin, claims Atlanta as its home. I

Computer Animation

• Fathom Studios: Fathom was originally an outgrowth of the interactive agency, Macquarium, designed to service clients who required creative solutions for broadcast and film.
• FrameFlow: FrameFlow provides computer animation and modeling services.

Online Gambling

• RealTime Gaming: Founded in 1998, RealTime Gaming is a leading provider of online casino software.

Internet Broadcasting

• DaveNetworks: DAVE Networks utilizes the latest matrix distribution technology to deliver music, video and other information assets to consumer, corporate and commercial customers.

Fortune 1000 Companies with digital and interactive departments

• Cingular: Cingular is headquartered in Atlanta and has a strong focus on mobile games and ring tones.
• Coca-Cola: Very popular web based games that allow kids to participate in a virtual world and collaborate on making music and playing games.
• TimeWarner/Turner: Has significant digital entertainment media for broadcasting and movies.
• Scientific-Atlanta: Scientific-Atlanta is a leading global manufacturer and supplier of products, systems and services that help operators connect consumers with a world of integrated, interactive video, data and voice services. C

Atlanta’s creative/design communities are gearing up for gaming

The recent expansion into Atlanta of the renowned SCAD (Savannah College of Art and Design.) This brings the creative piece to the equation. There is quite a bit of creative design talent floating around. SCAD also now offers a degree in Interactive Design and Game Development. Coincidence? I think not.

Oh, and don’t forget the Art Institute of Atlanta. This venerable institution now also offers a degree in Game Art & Design.

Moreover, Atlanta has long been a hub for the music and interactive media scene – there is a lot of crossover. We have the talent pool.

Support infrastructure is beginning to appear

Supporting infrastructure is beginning to appear. (Chris’ list, GA gaming assoc – or whatever it is called, etc.)

• Georgia Game Developer’s Association: a non-profit trade association of businesses and professionals of the video and electronic game manufacturing industry of Georgia. GGDA is committed to the growth and development of this industry and the success of its members as they compete internationally.
• The Technology Association of Georgia (TAG) now has an entertainment society.
• Greenberg Traurig Atlanta: Since opening in 1998 with six attorneys, Greenberg Traurig’s Atlanta office has grown to nearly 50 attorneys and relocated to The Forum building in Buckhead to accommodate its growth. One of their key practice areas is entertainment/gaming.
• IGDA (International Game Developer Association): The IGDA Atlanta Chapter is dedicated to helping the Metro Atlanta area establish itself as a center of excellence for the Entertainment Software industry.
• Atlanta Game Development Meetup: Informal group gets together monthly to discuss game development.
• The Georgia Production Partnership (GPP): a not-for-profit coalition of leaders, companies and individuals who are active in the state’s film, video, music, and digital industries. Established in 1998, this proactive group has been instrumental in the grass roots organization of the production community and the development of key legislative incentives. Their goal is to bring Georgia back to the forefront of U.S. production.
• The Interactive Media Alliance: TIMA is a nonprofit professional organization here in Atlanta, Georgia consisting of various levels of technical and artistic talents. The purpose of the group is to foster the interchange of ideas and knowledge between interactive media disciplines. Members of TIMA are dedicated to promoting the advancement of interactive media technology and passionately develop and support interactive media initiatives in the local community.
• National Academy of Recording Arts and Sciences (The Recording Academy) Focused on music and its makers.
• Urban Media Makers Association: The Urban Mediamakers Association, Inc. is a not-for-profit organization that promotes and supports the independent media arts community of Atlanta and the Southeast. We bring talented and aspiring individuals together to focus on independent mediamaking — animation, film, music, print, television, writing and video.

Research centers are popping up

Consider Georgia Tech’s Experimental Game Lab. Simply put, they explore the frontiers of gaming. In this interdisciplinary lab, computer scientists, designers and artists work together to push the boundaries of existing genres and create new genres of electronic games. Speaking of Georgia Tech, there is an interesting group of bloggers who have banded together to discuss, among other things, gaming (Grand Text Auto.)

The wireless connection (no pun intended)

Atlanta is at the forefront of the wireless/mobile revolution, and has been for a while. Cingular, one of the world’s largest mobile carriers is headquartered here, as are a plethora of mobile tech plays. Did I mention how hot wireless gaming is?

• Nearly 25% of cell phone owners play games on their phone at least once a month (source: M:Metrics)
• Women make up 65% of the market for mobile phone games (source: Telephia)
• Nearly 50% of cell phone owners have three (3) or more games installed on their devices (source: M:Metrics)
• Over 10M children between the ages of 10 and 14 have their own cell phones
• There are over 73M kids in the U.S., and they’re spending multiple hours a day using mobile devices for games, messaging, and music.
• Researchers project nearly 2 billion phones capable of playing games will be in circulation by 2010
• The mobile gaming industry is projected to grow to $18B by 2010

Sound good – so what’s missing?

The companies listed above are early adopters and pioneers within the local market. We need more Georgia entrepreneurs to take advantage of these trends locally to drive innovation.

On the flipside, we need investors to realize that there are other wealth-building opportunities that exist in Georgia outside of the manufacturing and telecommunications sectors. I would strongly encourage local investors to get involved in this space – before we see another influx of outside deal-makers arrive at Hartsfield International Airport with their checkbooks in hand.

2007 will be a breakout year for gaming – especially given Microsoft’s strategy for pushing the PC/Vista combo as a front-shelf retail game platform. It will be interesting to see how much push Georgia-based players can make in this space.

I welcome your comments below! Please note that if you are a first time commenter, your comment will need to be approved first before it will appear on the blog.

Special thanks to Chris Klaus of Kaneva for his assistance with this post. For those of you who are interested – stay tuned to The Pothole, as in the coming weeks, Chris Klaus will be joining Mike Blake and I for a podcast where we’ll discuss this very subject!

Cheers.

Waffle House is a venerable institution in the southern part of the United States. Open 24 hours, 7 days a week, most of the things you can order there would probably kill you if eaten more than once a month, but boy it sure is good. Nothing says “Saturday morning hangover” like a bacon, egg, and cheese breakfast sandwich, and a hot waffle! The coffee ain’t bad, either.

For over 50 years, Waffle House was a “cash-only” business. No credit cards or checks were accepted. 50 years! It wasn’t until February of this year (2006) that they began accepting credit cards. Here is a great quote from Walt Ehmer, Waffle House Vice President:

We wanted to make sure credit cards were here to stay before we started accepting them. Seriously though, we listen to our customers to find ways to enhance their Waffle House experience, and accepting credit cards was the biggest suggestion we heard.

The other day, my wife and decided that it was going to be a “Waffle House Saturday”. Not because we had a Saturday morning hangover, but rather we had a Friday night episode with our newborn. We decided that instead of packing up the baby and driving there, we’d just do a call-in/pick-up order. No biggie – we’ve done this several times in the past. I pick up the phone and dial up the Waffle House down the street not far from where we live.

Waffle House Employee: Thank you for calling Waffle House, how may I help you?

Scott: Yes, I’d like to place a pickup order please.

Waffle House Employee: Yes, will that be for here or to-go?

Scott: Um, it’s a pickup order …. that inherently means it’s to-go.

Waffle House Employee: Ok, can you call back in a few minutes?

Scott: Why?

Waffle House Employee: We only have one phone line and we are trying to run a credit card through at the moment.

Scott: {Dumbfounded silence …}

Waffle House Employee: {click …}

My old man used to say that if something sounds too good to be true, it probably is. Waffle House finally accepts credit cards, and they do it on the cheap by using the same phone line as the restaurant’s main line.

Being a die-hard Waffle House connoisseur, and an afficionado of anything covered in hot syrup, I decided that I would go online and look at their menu before calling back. I couldn’t decide if I wanted to go with something different, or stick with my “old faithful” order (which I won’t disclose here for the sake of getting solicited by any and all cardiologists reading this blog.)

Being the resourceful consumer that I am (coupled with the fact that I like to cause trouble), I went to the Waffle House web site to view their menu. After several minutes of poking around, it occured to me that they didn’t have the menu published on their web site.

Now, if you are in the restaurant business, there are three “must-have” things you need to have on your web site. A list of your locations (or “location”, singular, if you only have one place of business), driving directions/maps to those locations, and your menu in electronic form. Nope – no menu on the Waffle House site.

A restaurant with out a menu on their web site is something akin to Amazon.com not listing what books they sell. The shame!

Ok, now some of you are probably screaming at me. I can hear you now. “Scott, how can you pick on the Waffle House? They are this lowly, truck-stop of a breakfast diner. They aren’t Morton’s, The Palm, or The Dining Room at the Ritz Carlton. They are like Stucky’s with stools.
And you’d be right.

But let me put this into an economic perspective for you. Waffle House operates over 1,400 restaurants across 25 states. In 2003, their revenues were north of $800M. I’m sure it is probably closer to $1B a year by now. I think they can somehow free up the required financial resources to put their menu on their web site.

Although their menu isn’t on their web site, the good news is that you can actually buy Waffle House merchandise online! I wonder which is more important to their customers? I can’t call in a pick up order efficiently, and I can’t view their menu online, but boy … don’t I look spiffy in my Waffle House tee-shirt!

I’ll bet my wife would love a hat.

If anyone from Waffle House, Inc is reading this, please accept this blog post as $25,000 worth of free management consulting services, courtesy of The Pothole. I estimate that is roughly what you would pay a consultant to come in, pour through your organization, and present their “honest assessment” of how you can improve your service.

P.S. for those of you who don’t know what “Scattered, Covered, and Smothered” means, here ya go.

Cheers.

I want to point out a couple of things on this front, though.

First and foremost, I want to point out that this isn’t a knock on Fruitcast, or their team. It seemed like a great service (I even used it myself.) However, I am always of the belief that if you can learn something from the failures of others, the better. If I’m gonna fail, I’d rather fail by committing my own, unique, blunderous errors, rather than falling prey to “common pitfalls.”

Next, I want to talk about the “seven P’s”. You may remember the “4 P’s” from your Marketing 101 class in college (Product, Price, Place, Promotion). Well, the “seven P’s” of which I speak are not related to those “4 P’s” from Marketing 101. They are different.

What are the “seven P’s”? With a nod to Dick Marcincko, former U.S. Navy SEAL, who introduced me to the phrase years ago:

Proper Prior Planning Prevents Piss Poor Performance.

Fruitcast clearly did not secure enough capital and resources to move their plan forward. I am also reminded of the quote from German Field Marshall Helmuth von Moltke:

Kein Plan überlebt Kontakt mit dem Feind.

No plan survives first contact with the enemy.

Their email (full text below) provides a litany of issues describing why they are having to take a “hiatus.” However, many of the stated issues could have (should have) easily been addressed in the planning stages of their business (bandwidth, server downtime, lack of customers).

One of my favorite lines is where the Fruitcast guys inform us that they are “going to put Fruitcast on a brief hiatus, so we can work on it without annoying our member podcasters in the meantime.” Hmm. Call me crazy, but I would call shutting your service down for the summer “annoying to your members.” Probably even more so. A proper development plan would have provided an environment for handling such an event. The current service could have been continued while work progressed on the “2.0″ version. Just my two cents.

Bootstrapping isn’t for every business, and it isn’t for everyone. I believe you can bootstrap your way into relative obscurity if you aren’t careful. At some point, if you want to go big, you need capital, be it from the inside (founders, organic revenue growth, etc.) or from the outside (investors).

Finally, I will leave you pondering these questions:

• Fruitcast has stated that they are going to “be back soon.” But have they worn out their welcome?
• Users have high expectations these days, as do sponsors (their customer segment). What are the chances of a comeback?
• Will adoption be there this time?
• If they re-emerge with a solid business plan and adequate resources, will the market view this favorably, or will they forever be viewed as a “could-have-been?”
• Given the increasing number of “podcast advertising” plays popping up on the radar, have they missed their window of opportunity to be a player in this space?

I certainly wish the Fruitcast team nothing but success. I think the core of their idea is still a solid one.

Here is the original Fruitcast email, if you’d like to read it:

Dearest Fruitcasters,

We’re not going to beat around the bush — Fruitcast needs a lot of work. As one of the podcasters who has signed up for our service, you’ve experienced our ups and downs, server moves, service outages, etc., and most of you have been wonderfully patient with us while we try to figure all these things out. Now it’s time to make some things right.

-= OUR MAJOR ISSUES =-

Here are the biggest problems we’ve been facing:

1. LACK OF ADVERTISERS. We’re working on educating the ad industry, but it’s going to take some time before we have enough advertisers to satisfy even a fraction of the podcasters who are wanting to run ads. We’re now working on some exciting new ways to make it even *easier* for smaller advertisers to run campaigns on podcasts.

2. BANDWIDTH. If we were a VC-funded firm with heaps of money to throw around, we could easy take care of this — but we’re not. We’re running on a relatively efficient budget, and we’ve had to try to find a good balance between power and cost. Our current hosting solution just isn’t cutting it (as you may have noticed), and we’re working on some potential relationships with hosting/bandwidth providers to get the kind of solution that Fruitcast really needs.

3. SERVER DOWNTIME. It’s totally unacceptable for a middle-man solution like Fruitcast to go down as often as it does. There are a combination of issues, including the hosting platform, code quirks, less-than-adequate handling of non-standard feeds, etc., that are causing some of these problems. In addition to seeking a more stable platform, we’re also building a number of monitoring tools that will help the Fruitcast system react and self-adjust as necessary to ensure uptime.

-= HOW WE’RE GONNA FIX IT =-

You guys, the podcasters, have been bearing the brunt of these issues. Because we’re a genuinely podcaster-oriented company, this has been an acutely painful truth for us. We could continue to tweak and hope that you guys put up with these issues until we could finish them, but we simply can’t tolerate the downtime and other issues that you’ve been facing. We’re not going to get between you and your listeners until we can promise consistent uptime and high-quality service.

So, we’re going to take some drastic measures:

1. FRUITCAST IS OUT FOR SUMMER: We’re going to put Fruitcast on a brief hiatus, so we can work on it without annoying our member podcasters in the meantime.

2. REVAMPED PLATFORM: We’re going to completely rewrite our ad serving platform to incorporate the many fun, fascinating, and occasionally painful lessons we’ve learned over the past several months.

3. MORE FLEXIBLE OPTIONS: Long ads, short ads, live reads, sponsorship spots, radio spots. We’ve listened to your feedback, and you’ve indicated that you’re quite comfortable with offering a variety of options to advertisers. We’re going to give it to them.

4. MORE PODCASTER CONTROL: You should have the ability to approve or reject every advertiser who wants to put a spot on your podcast. We’ll give you that ability.

5. MORE PROMOTION: Our new system will give allow you to recruit potential advertisers right from your own website. (We’ve also got a number of other clever ideas up our sleeve.)

6. QUALITY CONTROL: We’ve allowed every podcaster who signed up to be listed in our directory, and it doesn’t seem like that’s fair to the advertisers, or to podcasters who are putting a ton of effort into their work. We’re not going to tell you what to podcast about, but we will have certain requirements for feed integrity, hosting consistency, audio quality, etc.

-= WHAT THIS MEANS FOR YOU =-

The most important thing for you to do right now is to CHANGE YOUR FEED to use your base url instead of your Fruitcast url. For most of you, this should be as simple as changing the url in Feedburner, but some of you may have used the actual Fruitcast url as your primary feed, and you’ll have to let your subscribers know that it’s changing. (Sorry!)

We’ll do everything we can, including manually redirecting every feed, to make this as smooth a transition as possible. However, the sooner you can get your listeners back onto your base feed url, the easier the transition will be.

-= THIS IS THE BEGINNING =-

We’re going to bust our behinds and come out with Fruitcast v2.0 as soon as possible. We genuinely appreciate you, the members, for standing by us through the rough times of an early startup. This isn’t goodbye — it’s more like a trip to the supermarket. We’ll be back, and we’ll be bringing ice cream with us.

(More updates will come soon…feel free to reply with any questions you might have.)

Good night, and good luck!

The Fruitcast Crew

Cheers.

No, this isn’t going to be an article telling you how bad the language and cultural barriers can be. That much is obvious. And please don’t post a comment telling me how great offshoring is, and how your Uncle John’s company saved millions of dollars by offshoring his hair-dryer repair operation. I am glad your Uncle John fared well, but that is not the point of this piece.

First, let me throw out a working definition of offshoring. I do this because there are far too many of you who use the words outsourcing and offshoring in a synonymous fashion. Though sometimes related, they are two different things. From Wikipedia, that great bastion of collective intelligence:

Outsourcing is defined as the delegation of non-core operations or jobs from internal production within a business to an external entity (such as a subcontractor) that specializes in that operation. Outsourcing is a business decision that is often made to lower costs or focus on competencies.

Offshoring can be defined as relocation of business processes to another country, especially a country overseas. This includes any business process such as production, manufacturing, or services.

It was supposed to be an elixir for growth and cost control. The theory was that if we exported low-wage manufacturing jobs, we could retrain those blue collar workers to fill “better” jobs. We would have the potential to create newer, better jobs, in the place of everything we were shipping overseas. The Kool-Aid sounded great when we were exporting only those “lower-wage” manufacturing jobs (even though there were mixed results there). It didn’t take long for white-collar America to realize that there were “cost-impacts” waiting to happen by outsourcing things like software development and graphic design. So now we’re burning the candle at both ends. But I digress …

Okay, so one day, you are rifling through your emails looking for a status report from one of your employees. While merrily skipping past the “we can give you a free trial of Viagra, a free vacation in the Bahamas, and a better mortgage rate!” solicitations, you come across someone touting their offshoring expertise. You pause for a moment, and recall that your current software development efforts are running behind. Perhaps you are contemplating launching a new venture and need some technical grunt work done. In any event, you decide to give it a go. Wow – a great way to get high-tech work done, and at a fraction of the cost! What could be better?

Offshoring sounds like a great thing for startups and small companies. The promise of cost savings have certainly tempted more than one business owner over the years. But when you open up the Kimono and peer inside, you may not like what you see.

A while back, I provided some consulting services to a small technology company here in Atlanta. During the early days of their launch, they decided to outsource a key component of their system to a development shop in India. Yes, they saved a boatload of money up front. Yes, what they got back was functional as per the requirements. However, there exists the darker side of offshoring, even when “success” appears to be manifest on the surface.

The quality of the finished product was simply not up to par. For instance, instead of using the now common practice of CSS layouts, all of the markup was spit out in a nasty series of nested HTML tables. Compliance with XHTML was out of the question. While functionally adequate, the aesthetics left a lot to be desired (and if the proper separation of the presentation and business logic layers had been in place, this could have been more easily addressed.) Finally, the entire application was not optimized for SEO (search engine optimization) – yikes.

This company had to spend several weeks going back through this code, cleaning it up, and in some cases, re-architecting it to bring it up to compliance with current standards. Their “savings” turned out to be red ink in the end. More importantly, they lost valuable time. In a startup, time is currency.

As my father, and most likely your father, would have said … “you get what you pay for.”

To play devil’s advocate, and to give the offshoring advocates a fair shake, I should point out that the above scenario could have easily happened here in the U.S. as well. In theory, a proper level of governance should have detected such anomalies early in the cycle, when they can be addressed. However, too many people rush into offshoring without thinking about governance. Would you have someone build a deck onto the back of your house, or install a swimming pool in your backyard, without you checking in from time-to-time to make sure that progress is being made in the right manner?

Silicon-valley legend and current venture capitalist, Guy Kawasaki, is known for his infamous “top 10″ lists. [ And yes, Guy, to answer your email question, you were very consistent. ] ;) In his recent “Top 10 Lies of System Engineers“, he serves up this gem at number eight:

8. We can do this faster, cheaper, and better with an offshore programming team in India. Rank and file engineers usually don’t tell this lie; it’s the CTO who does. Somehow we’ve got it in our heads that every programmer in India is good, fast, and cheap, and every programmer in the United States is lousy, slow, and expensive. My theory is that for version 1.0 of a product, the maximum allowable distance between the engineers and marketers is thirty feet.

1. Only offshore things that you don’t mind losing a bit of control over. In the end, you could have very little of it.
2. Only offshore things that are not mission-critical.
3. Mitigate your risk – don’t put all of your eggs in one basket by offshoring everything you do.
4. Offshore only those processes that can easily be repeated elsewhere.
5. Never, ever, ever, ever, ever offshore a core competency.
6. Never, ever, ever, ever, ever offshore sensitive information or tasks. Always remain security conscious!
7. Whenever possible, offshore only discrete tasks. Remember the KISS principle? Keep it simple for the folks overseas and save yourself some headaches later. I am reminded of one of my favorite UNIX philosophies (courtesy of Doug McIlroy): write programs that do one thing and do it very well. Same concept.
8. Don’t be blinded by the savings – play the role of realist – consider the opportunity costs if things go sour.
9. Whatever you do, get relevant references for your provider (i.e. someone in your industry, metro area, etc.)
10. Finally, if your friend runs an offshoring company, and you are contemplating using them, keep in mind that your friend isn’t the one who will be doing the work; instead, it will be some guy making $3.75 an hour. ;)
11. Bonus: think governance, governance, governance. But be careful – you could end up spending a ton of money trying to “govern” your offshore team. Those savings can shrink considerably if you aren’t careful.

On the flip side, I should point out that there are some very real savings that can be attained via offshoring if you just exercise common sense. A good friend of mine outsources a lot of data processing work to Russia and Indonesia. The work they do is very discrete and isolated. The vendor does one thing and they do it very well. Additionally, the tasks they are performing could easily be transferred to another vendor. Ergo: the offshore vendor is not a single point of failure.

One interesting story to share regarding #4 above. I read an article the other day about a Japanese company that offshored quite a bit of software development to China. Due to the fact that software piracy and intellectual property theft are so rampant in China, this Japanese firm was hesitant to give the entire project to one Chinese firm. Instead, they offshored many smaller pieces of the project to several different Chinese firms. No one firm had the full visibility into the project. Great way to mitigate your risk, right? Wrong … think about it for a minute. If the word “inefficiency” isn’t slapping you in the forehead, call me up so I can come over and slap you vigorously for about half an hour.

Steve Jurvetson, of Draper Fisher Jurvetson fame, had a timely piece on his blog the other day. In his post entitled Keep on Booming, Steve points out that “baby boomers” could be a viable alternative to offshoring:

Aging boomers are numerous and qualitatively different. Compared to an older generational cohort, the average boomer is twice as likely to have college degree and 3x as likely to have Internet experience.

Envision a future where many aging boomers are happily and productively working, flex-time, from home, on tasks that require human judgment and can be abstracted out of work flows.

In short, the boomers could be America’s outsourcing alternative to off-shoring. The Internet’s latest developments in web services and digital communications (VOIP and videoconferencing) lower the transaction costs of segmenting information work across distributed work organizations.

On a final note, I read the other day where certain technology investors are now openly proclaiming that they are only seeking to put skin into those games that have an offshoring component to them. I’m all for cost savings and efficiencies where it makes sense, but using offshoring as part of an investment profile makes little sense to me. What happened to investing in innovative ideas? Investors have enough risk to deal with when planning their investments …. why in the world would they want to introduce more of it?

I wonder what would happen if I offshored my blog posts?

Cheers.

Trust me when I say that up until this point, we had tried everything. We were running a massive community site, with over 65,000 active members. Our message boards were very targeted, and incredibly hyperactive, receiving over several thousand new posts each day (almost 100K new messages per month). Our ad servers were pumping out over 10M targeted ad impressions a month. We had a number of niche tools and other services as well, each of them aimed at enriching the experience of our users.

We were hellbent on not charging our members a mandatory membership fee, but we had to do something in order to break even.

I should point out that in this day and age, the landscape is a little different. Widespread user adoption of online services is present, and as long as you have (a) a viable market and (b) a product/service worth paying for, you stand a reasonable chance of having users open their wallets for you. However, this isn’t always the case. There are a lot of other factors involved.

What I am about to share with you is probably not as applicable to B2B communities, where revenues are driven primarily via transactions or regulated subscription fees. However, reliable ways to monetize P2P communities have historically been hard to come by.

We tried a variety of twists on the sponsorship and online ad models, but with mixed results. Unfortunately, it was right in the middle of an economic downturn, and sponsors were hard to come by. The online ad market had long since dried up as well. We tried experimenting with things such as CafePress.com, as well as a variety of affiliate programs, such as the ones offered by Amazon and Commission Junction. Our results were mixed.

Ad revenues are a good way to augment community revenues, but unless you are one of the top traffic gatherers on the net, they won’t cover all of your expenses. Trust me when I say that by and large, the only people getting “rich” off of Google AdSense ads are the folks at Google. As one venture capitalist told me the other day: “If an entrepreneur’s business model is predicated on Google AdSense, I quickly run the other direction.”

Then, it hit us. It hit us so hard that our skulls were ringing for a week. While we didn’t want to charge a mandatory fee to our members, there was nothing stopping us from charging a voluntary subscription fee. Thus, our Name Your Own Subscription (NYOS) program was born.

In the beginning, we simply asked our users to “name their own subscription” fee. If you could afford $5, great. If you could afford $25, even better! If you could afford $100, wonderful! And if you can’t afford to pay a fee, then don’t. The results were staggering. In the first year alone, we signed up roughly 1,000 paying members, and grew it incrementally beyond that. In the end, we built a nice recurring stream of revenue for that business.

We later evolved the program into a voluntary, but tiered program, using bronze, silver, and gold levels to denote pricepoints. Eventually, we evolved it even further, to where each of the levels had a 6 month, 1 year, and 2 year option. We used a special set of icons to denote membership status in our forums, as well as through other areas of the site. So, it was pretty easy to see who was a paid supporter and who wasn’t.

Now, I know that some of you are probably already making the comparisons to “charity” donations. However, that wasn’t the case at all.

First and foremost, our community members participated in our community to enrich their professional careers – therefore, the subscription fees to our community site were, by all accounts, a tax deductible professional expense!

Community sites have to diversify in order to survive. Ad revenues are generally not enough to sustain operations, much less growth. A combination of things such as subscription fees, ad fees, shopping cart sales and affiliate programs can provide a nice mix of revenues for a growing community site.

It is also important to point out that this subscription model has an added bonus side effect of increasing customer and member loyalty. Members realize that you need revenues in order to survive, but are generally grateful for not being “forced” into something. The acceptance rate of our NYOS program was so high, that we even had members paying for the subscriptions of those who could not afford it on their own. The lesson here is to never underestimate the value of building loyalty among your customers. Loyalty is an asset that can be leveraged for financial gain, provided it is treated respectfully and with a soft touch.

Cheers.

I concur wholeheartedly with his sentiment:

People are eagerly embracing the next wave of the internet and the self-expression it brings. However, they are also crying out for better solutions to help them find what they want, when they want it. There are going to be significant opportunities for companies that can bring intelligence and relevance back to the search process. It looks like Pandora’s Box has been opened.

The problem is the “time” component. It can often take a substantial amount of time in order for content to either bubble up or fall off the edges. While their infrastructure is apparently propped up with bailing wire and bubble gun, I do like the way Technorati’s rankings are designed, at least in theory. The downside to having a focus on what is “happening now” is that the user can sometimes lose visibility into value-added content that is only a few weeks or months old.

Nevertheless, his point remains. Niche search plays are beginning to garner a lot of attention from investors, and with good cause.

Matt mentions a couple of interesting plays in his post (Pandora and Riya). Another great play on the horizon is podscope.com – they offer the ability to search for spoken words through the universe of podcasts (both audio and video). Not fully indexed yet, but it has promise.

As with many of these niche search plays (including deep web searches), the exit strategy for investors most often involves Google … not sure if that is good or bad, but it seems to be the reality of things.

Link to Matt’s post: http://www.vcconfidential.com/2006/03/pandoras_box.html

Cheers.

- Scott Burkett

The other day I was enjoying a pint or two at lunch with a friend of mine. That is one of the biggest benefits of being “in between executive assignments.” He regaled me with the details of a rather interesting phone call he received about a month ago from a recruiter sourcing an executive opportunity with a large publicly-traded firm.

By all accounts, my friend is a pretty successful fellow. He’s worked with some big name-brand firms at the executive level, and is a bit of a globetrotter. However, he has no desire to leave Atlanta, and this particular opportunity was in the Washington, DC area. Nevertheless, it didn’t prevent the recruiter from trying to entice him into a move.

She asked him to tell her what it would take for him to take the job in DC. At this point, he didn’t know the company name, or even really anything about the role, other than it was of a “very important strategic nature” for the hiring firm. He threw out a figure of $300K a year, thinking “hey, why not?”, and was summarily treated to a rather lengthy period of silence. After some time elapsed, the recruiter said “did you say $300K?”

After confirming this, my friend explained that in order to uproot his family, sacrifice his wife’s career (who is also a high-earning top-tier executive), and match the cost of living in DC, he would need $300K per year. Tasting victory, and closing in on his prey, he then proceeded to ask the recruiter to explain more about the job, as perhaps there was some flexibility there in terms of salary and benefits, if the opportunity was right for him.

Then, the recruiter dropped the bombshell on him.

Now folks, we’ve all had some really crappy jobs in our past lives. Everyone has at least one story about some bizarre, horrible, and undesirable position they’ve filled. But this one takes the cake.

I’m not talking about cleaning drains, scrubbing floors, or scraping out cow dung from the backside of a barn. Nope. We’re talking light years worse than those.

What was this job he was offered?

—+> Dialup Customer Retention Manager for AOL <+---

AOL is losing hundreds of thousands of dialup customers each month to broadband, and this is their strategy? It is pretty evident that the industry has passed them by. Where is the technology leadership? It appears to me that they have none. AOL is on the lame train, with a first class ticket on the nonstop to nowhere. They are the poster boys for laggard companies. There will come a day when people will speak of AOL in the same manner that they now speak of Eastern Airlines, Commodore Electronics, and Hayes Corporation.

Can you imagine trying to phone dialup customers (no pun intended) and begging them to not go with broadband? In the words of Sting and The Police, circa 1978, from the flip side of Can’t Stand Losing You:

don’t want no dead end job
I don’t wanna be no number
I don’t want no dead end job
I don’t wanna be no number