I just finished reading a great Q&A in CW Bulletin, the online companion to CW Magazine. The interview is with a veteran creative director and entrepreneur at Grayton Integrated Publishing on how to cut costs with creative projects like marketing, advertising, and publications.

The interview contains some very sound advice, and I was struck at how much of it sounds familiar (pun intended):

What’s the first step to defining your objectives?
Whether you’re creating a magazine or a brochure or launching a full-blown campaign, don’t discuss what it will look like until you’ve agreed on its purpose. Who is your audience? What are you telling them? What are you hoping to achieve? Don’t try to figure out if your vehicle should be a bus or a Ferrari until you’ve determined where it’s coming from and where it’s headed.

Turns out the interviewee is my mother. Long-time readers of this blog may also remember that my Grandmother was recently in Sailing Magazine.

Alright dad, time to step it up!

Update: A few gramatical errors and some horrible spelling errors. Turns out my mother was also a copy editor.

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[UPDATE:  Andrew McAfee has critiqued my post on his blog here. Valid points, all. My reply is below, and on his original post.]

My former colleague Pete Kim has been on a roll lately. A week ago he challenged the blogosphere to become more than just an echo chamber — he even challenged me personally to “really turn it on.” This weekend he clarified further to say that social business is business. And today he goes on to explain why he believes Web 2.0 still matters. Like any good colleague, Pete has pushed me to clarify my own thinking on the subject.

As an economist — and a micro-economist specifically — I look at Web 2.0 through the lens of Coase’s The Nature of the Firm and the eventual refinement and expansion of his theory over the last 80 years. So what do I see when I look at Web 2.0, social media, social software, and whatever else you want to call this thing? I see a fundamental rethinking of the definition and function of the firm; the single biggest change since the industrial revolution.

Yes, that is some over the top rhetoric, but consider the facts: Since the industrial revolution the basic creation of economic value has followed a pretty simple path. Firms acquire capital, labor, and resources, combine them into a valuable product or service, and sell the product or service to individuals or other businesses who consume that value. In this system is it incumbent on the firm to create value, and the role of the buyer is to consume value. End of story.

What Web 2.0 software has done is give firms the tools to blow the doors to value creation wide open and invite customers, partners, experts, and prospects into the process. Think of a social network like the ones run by Communispace; here businesses are opening the doors to the product development, marketing, packaging, and distribution process to customers who add value every step of the way with their preferences, ideas, and reactions. The firm is no longer creating value alone, it now has help.

Skeptics will argue that this sort of value has always been provided to the firm through focus groups and other market research. While it is true that these functions have brought in outside opinion and value in the past, they have never before operated at the scale that truly social software allows. Instead of a one-off focus group for 8 hours with 20 people, firms now have the ability to conduct perpetual focus groups with as many people as care to join. This, needless to say, is a big change.

Over the next 10 to 15 years, on the back of social software, we will go from a fundamentally closed value creation system to a fundamentally open one. The firms that get their first and with the greatest depth stand to profit wildly, while those that do not embrace this change will be stuck with a slower pace of innovation and industrial revolution-era economics and resource constraints. Firms that embrace the community will harness vast amounts of community value at almost no explicit cost. Again, this is a huge transformation.

If you have spent any time speaking with me or reading my research in the last two to three years you have likely heard some version of this before. My colleagues as well have been writing about this change — see Peter Burris’ Community Marketing report for a great marketing focused example. Over the next year my goal is to expand and deepen Forrester’s coverage of this shift, eventually providing firms with a road map of how the move towards open business will play out, and where they can take confident steps forward. First up is a report tentatively title “Community Evolution: How Loosely Coupled Communities Of Interest Will Mature Into The Tightly Bound Economic Actors Of Tomorrow.” The report will aim to answer:

• What types of products and services will communities provide in the future?
• What business models will facilitate those communities? Will they be for-profit?
• How will communities evolve over time?
• What should businesses do today to prepare for the change?

If you are interested in contributing to the research please let me know in the comments, or via email. Pete, expect a call for an interview shortly.

This, as you can probably tell, is something I get very excited about, and I am thrilled to share my findings with you, and the rest of the world. It may sound self-serving, but I don’t think there is a better job in the world right now than an economist focused on technology. It’s an exciting time to be in research!

(photo courtesy of hagit, via flickr)

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I probably shouldn’t admit it in public — considering I’m a social media analyst — but I subscribe to the daily print edition of the Wall Street Journal. This morning I had just finished running through the paper when it realized that I hadn’t seen such a brutal collection of news about tech companies in quite some time.

To wit: Here are the headlines on the front page of the Marketplace section.

1. “In rare move, Microsoft is exploring job cuts“
2. “Nortel Networks files for chapter 11″
3. “Smurfit says bankruptcy is possible amid crunch” (Smurfit-Stone is a cardboard manufacturer)
4. “Motorola to cut 4,000 more jobs as cellphone sales collapse by half”

Of 23 total articles in the section, 9 (39%) were about tech companies and they were almost universally negative — and that doesn’t even include the front page article about Steve Job’s health. The only positive news was “IBM plans new center in Iowa.” Needless to say, the market is down, and the tech market is down right along with it. Granted Motorola and Nortel have been in trouble for a while, but Microsoft, Google, and Seagate are all well run companies. If there was any illusion that the tech industry might not get hit in the recession the Journal blew it away.

Rest of the tech headlines:

1. “IBM plans new data center in Iowa”
2. “Goolge plans 100 layoffs of recruiters”
3. “Bartz eases some hurdles to Yahoo-Microsoft deal”
4. “Satyam seeks leaders, names auditors”
5. “Growth in world-wide PC shipments levels off”
6. “Seagate slashes salaries”

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This past week’s Consumer Electronics Show in Vegas produced two big stories with one major theme: recession. The first, not surprisingly, is that consumer technology manufacturers have responded to falling discretionary income. After years of excess the pitch from manufacturers is now  “value,” not glitz or pizazz. My colleague James McQuivey reported from the show that several exhibitors spent more time emphasizing the value in their old products than launching new ones.

The second story was the falling attendance. Early estimates put attendance down by 8% year over year, and if the taxi lines were any indication the actual attendance was much lighter than that. (UPDATE: VentureBeat reports the drop at 22% — yikes!) Frankly this is not a big shock. When budgets are tight — both for individuals and businesses — expenses like travel and trade shows hit the cutting room floor.

For marketers this is a big problem. The last few months I’ve been doing a lot of research with my colleague Laura Ramos on the types of media information sources that have the biggest impact on business buyers. What we have found again and again is that trade shows have a big impact, especially amongst the biggest buyers. Among IT hardware buyers, for example, 65% of buyers report trade shows are important or very important to their purchases, the 6th most influential information source overall. (see the very complex graphic below)

For the balance of the recession — and economists are split on how long that may be — attendance, and consequentially client impact, for trade shows is going to be down. Marketers, this is going to hurt. One of your better tools for informing buyers will be neutered. As your marketing budgets get slashed the pressure to go cold turkey on trade shows and events is going to be high, and many marketers will cut. This would be a mistake. Fewer of your competitors will pay to shake hands and demo products to customers so while your attendance may be down, the competitive impact will be up. If your budget is really tight, think about opening up your local offices for an open house; the customers may not be able to pay to travel to you, but you should be able to get to them at a low cost.

Many marketers will look to cut budgets in the next few weeks and while the pressure to cut trade shows and events will be high, keeping the intimacy with customers will pay dividends, even during a recession.

UPDATE: Just this morning I got an email from Oracle advertising “HP Oracle Exadata Roadshow Boston‏.” Their database is wrong for my location, but the strategy is dead on. If customers can’t pay to get to you for trade shows you must go to them.

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As an economist I find our current economic meltdown equal parts frightening and fascinating and, as of late, I have been thinking a lot about my macroeconomic courses from college. At the time I had a very tough professor — Dr. Louis Philippe Rochon. He was a post Keynesian, essentially economic nihilism, and as a result we read a lot of obscure original texts and papers. One of the papers we read was by Hyman Minsky.

In light of today’s economic meltdown a lot of researchers have been looking for clues from the past, and many have settled on Minsky’s “Financial Instability Hypothesis.” As I understand it — I never spent much time with Minsky as he is a bit of an obscure economist — the theory tries to bring speculative bubbles and their subsequent popping into the orthodoxy of market dynamics. This insight was likely pretty accurate for our meltdown in 2001, however it is the wrong theory for today.

Right economist, wrong theory!

If we are looking to understand today’s meltdown we instead need to look to Minsky’s theory of “Financial Innovation” (I’m trying to dig up my old notes and will post a link to the paper once I find it). The crux of Minsky’s argument — its worth noting that he was a bit of a pessimist — was that regulatory bodies, no matter how well meaning, cannot regulate as fast as financial institutions innovate. Therefore at a high enough interest rate banks and other lenders have the incentive to “create” money through financial innovation.

I would argue that the option ARMs and other exotic mortgages created in the last 10 years were just the financial innovations that Minsky was theorizing about and in essence built an infinite money supply. That money supply (in the guise of the housing market) was driving the economy most of the last 7 years.

What we are experiencing now is the crumbling of all that “innovation” upon which we built our economy, and the money supply is “correcting” back to a more realistic level. In the process a lot of wealth is getting destroyed. My guess is Minsky is happy he died well before his theories proved as prescient as they have.

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