Money quote:

“I’m going to quote a competitor to Mediapost, Advertising Age, but its packaged-goods reporter, Jack Neff, said it best: “BlogHer helps solve the mystery of how marketers will manage to spend money on social media despite showing relatively little interest in ads on Facebook or MySpace and the numerous free opportunities available everywhere.”

Neff than goes on to quote Jill Beraud, the Global Chief Marketing Officer of PepsiCo, who explains that wooing the mommy bloggers is a long-term ROI effort. As for the entire roster of advertisers at BlogHer, it reads like a who’s-who of the blue chip: Wal-Mart, Procter & Gamble, General Motors, Gymboree, Unilever, Kodak.”

‘Soft’ business models

I have a background in software marketing. Techrigy, the last company I worked for, and BlueTie, a previous employer, are both software as a service or SaaS companies. In other words they provide software that is not wedded to proprietary operating systems or hardware configurations. You simply subscribe and access via a web browser.

SaaS is a rapidly growing model for delivering software to customers because it is scalable and relatively easy to understand the cost structure involved. It generally does not require input from IT people, making the sales and purchasing process much less complicated. It is a truly ’soft’ business.

‘Hard’ business models

Hard businesses on the other hand sell things. These things often incorporate software that gives them intelligence. Your setback thermostat, your iPod, your CNC robot, your Blackberry- they’re all hard devices. Hard businesses have traditionally been more costly to start because of the need for prototyping, tooling, inventory, distribution, etc. However this is rapidly changing as designers have the ability to design and test in completely virtual environments, build instant prototypes with rapid prototyping technology and contract manufacturing and distribution out to companies designed to handle that business.

The hard/soft eco-system business model: Apple

Apple is the quintessential example of a hard business that operates more like a soft business. The vast majority of their considerable profits come from the sale of hardware, yet they own no factories. They are expert software developers, yet they give most of their software away with their devices. All of their manufacturing is outsourced. But even Apple is venturing into the grey area where hard businesses become soft businesses. The iPhone, perhaps the most phenomenally well-conceived and marketed new product ever, is neither a completely hard or soft product- it is a piece of an elaborately conceived business eco-system.

Business eco-systems are social models

This eco-system is in fact based on social network theory, something I believe Apple founder Steve Jobs is intimately aware of. iTunes introduced a custom browser-based store where you could buy content for your iPod; SaaS in other words. It put the retail music business out of business. iPhone was conceived as a platform with a complete operating system comparable to a computer- that happened to make phone calls. The App Store, via iTunes, introduced the ability to buy ridiculously cheap software that extended the usability of iPhone to the point where it becomes the most important device for daily use that we own. iPod Touch offers this usability for those who don’t need the telephony piece. Apple freely distributed a Software Developers Kit (SDK) for iPhone OS that made it possible for thousands of programmers to start soft businesses for virtually nothing. Within a year it had 20,000 applications and over 1 billion downloads.

Understanding your business eco-system is crucial to your growth strategy

This interconnected approach is where your business model needs to be pointed, regardless of where in the hard/soft continuum you fall. Look at your customers, partners, distribution paths, purchasing, design, sales and competitors as elements of an eco-system. Once you understand your place in that eco-system it becomes much easier to undestand where you can leverage your position to grow our business.

Want to get an outside perspective on the eco-system your company lives in? We should talk. Contact me via my website, martinedic.com

Update: iPhone/iPod Touch used by military without three year procurement process

The US military is finding iPhone and iPod Touchs to be field ready devices right out of the box. From an eco-system POV this is not a minor story. Apple has entered the military procurement system with an off the shelf product with a zero ramp-up time frame. Why? How? Because soldiers in the field can build their own applications for using it the way they need to. Can you imagine if a military contractor was contracted to build this? See you in 3-5 years with a product that costs $10k per unit and doesn’t work…

Eco0system business approaches are fast and adaptable.

There is a seismic change going on in the way companies communicate with their customers and prospects. In the traditional model there are three company departments that communicate with their market, typically in a silo-ed manner:

• Product Development. Through research, including panels and focus groups, savvy product developers try out concepts with users, receiving feedback on usability, features, appearance, etc. Unfortunately this feedback is not truly unbiased because there is a selection process associated with these situations.
• Marketing. Marketing traditionally pushes out complimentary brand and product messaging, in part based on research and demographics and in part based on ‘creativity’. We market at people, not for people. Today we’re marketing with people.
• Customer Service. Customer service is viewed as problem-solving, the primary problem often being viewed as the customers themselves. The product may be imperfect but the customer caller is someone to be avoided through phone trees, referrals to automated help systems, etc.

Social media unites research, communication and service

With the advent of social media, all of these functions need to be reevaluated to the point where I’d argue that all should be eliminated in favor of a Customer Interface Department. The Customer Interface Department would be the central point in the company dedicated to understanding what customers want, what they feel about the company and the products, and how the company responds to those needs. A department that champions the customer.

Social media means businesses have ceded control to the market

There is little separation among these functions when you have access to monumental global conversations about your products and services, conversations that are unguided and honest. Being able to understand these conversations changes market research, communications and problem-solving. The social media eco-system provides all of these functions as people review, question, complain, compliment, tear apart, suggest and spread the word about products they are interested in. The company that understands this understands that they must fundamentally change the way they interact with this system.

Your choice is to respond and change now or later; but you will be changing

This is not a voluntary change in the way businesses are structured. It is the way things will work going forward. Start with this premise: Your products and service must be the best on the market or have a considerable price advantage that outweighs their defects. Given that nearly any product eventually becomes commoditized in a global digital marketplace, the former is your only competitive option.

Only best in class products and service, combined with honest engagement will make it

You cannot pay lip service to being the best, you must actually be the best. Why? Because anyone considering a purchase, whether it’s a high-end server or an electric toothbrush is going to go online and ask others what they think. The detailed responses they find will determine their buying position. And the entire decision process including their experiences interacting with your company and your people will be public and globally accessible via search.

How does social media affect us? Where do I start?

Are you wondering ow this affects your business?

How your culture is going to adjust to drastically changing internal and external relationships?

The first step is o take a look at where you are vs. where you will be.

If you’d like to have a conversation about how social media will impact your business in the near future, give me a shout at MartinEdic.com

Google and Facebook don’t advertise. My friend’s nightclub doesn’t advertise. They have a Facebook Group with hundreds of members, members that want info on what’s going on at the club. If I’m asked about advertising I tell people to try Adwords, Google’s PPC ads, and to do it themselves. Better yet, figure out social media and spread the word to people who are looking for the solution you offer.

The advertising business is poised to disappear, and like the newspaper business, they don’t seem to know it. Consumers are exposed to thousands of ads daily and the result is that we no longer see them. They are meaningless and they no longer affect our buying decisions. I recently bought a computer monitor. Did I buy a magazine and look through ads for monitors? Did I go to a store and talk to a sales rep? No. I went online and read user reviews.

Ad agency people, read that last line and ask yourself if your business is still viable. Tell me one compelling reason why using clever, attractive, intrusive or subtle brand advertising makes any real difference to your clients.

An agency I once worked for did an award-winning (The awards are chosen by other ad agencies, an anomaly that I always thought was pretty self-serving) campaign for a beer brand. Sales increased. But did they increase because of a clever slogan or because beer drinkers liked the product and told their friends? The fact is they don’t know.

I spent the last year marketing a software product that is critical to understanding how brands are perceived in social media. Our intial target markets were PR and ad agencies. We talked to and demo-ed hundreds of agency people. I gave in-person presentations to many agencies. Not one advertising agency bought the service while nearly every PR agency was either buying from us or reviewing competitive products- they understood why they needed this. The typical ad agency response was to interrupt the conversation and glibly announce that they did not understand why they needed this service. After all, if social media is the new marketing medium what are all the creative and media buying people going to do?

Good question. Maybe start engaging customers and adding value to the conversation? Listening and responding to specific requests for improvements?

Unfortunately these activities are difficult to bill for at agency rates. That’s the response I heard every time. It doesn’t fit our business model. Right.

Change the business model. Or get fired when your clients learn that their competitors embraced social media and have a big headstart while they were spending millions on ad campaigns that they cannot put an ROI number on.

The world of marketing has changed completely with the widespread adoption of social media. If I ran an ad agency I’d be working 24/7 to figure out what this means to my business and what I have to change to take advantage of it. I’d have every employee reassessing their skillset and job description to learn how they can apply those skills to an entirely new medium.

Advertising has always viewed itself as the ‘coolest’ profession on the planet. Creativity is king in their minds. Yet many are crippled by this perspective. What if you are wrong? What if the world changed while you were shooting multi-million dollar broadcast ads? What if you run those ads and the response is public ridicule? Or even worse, no response because the people are going to their peers for better information?

BTW, if you’re an agency and you want to build a profitable social media practice we should talk. Contact me via my site, martinedic.com . I’ve been working with agencies on their social business model for the last two years.

This blog is about the real world application of social media marketing as the primary marketing medium going forward. Even the word marketing is limiting when it comes to social media: SM can drive product development, customer support, reputation and brand management- even build global market share. I’ll be sharing real world stories, interviews and examples of all of these applications. Though my business, WTSsocial, is focused on social media monitoring and engagement in higher education, I won’t limiting my focus- everything is connected in social media.