Dell may change its direct sales model.

Michael Dell sent a memo to Dell’s 80,000 employees on Wednesday saying that he is considering changes to Dell’s strict direct model of selling computers (read about it at the NY Times). Dell’s direct model is one of the most talked about business models of the last two decades. Dell used IT and efficient networks to integrate its entire supply chain so well, that computers were produced only when they were ordered, lowering inventory costs and eliminating the need for costly, unreliable demand forecasts.

Today, however, Dell is facing declining sales and revenues, partly because laptops are much harder to build on-demand when they are customized, and therefore must be built in advance.

In his memo, Michael Dell, who recently took over the helm at Dell again, writes that

The direct model has been a revolution, but it is not a religion.

This is a long time coming from the company which has refused to change its way of selling despite its economic woes. This doesn’t mean that the direct model is bad. It’s still an amazing model that when done right, for the right products, and with the right partners in the supply chain, can be extremely cost efficient.

What’s important is that no business model should be treated as a religion, to borrow Michael Dell’s words. A business model should be seen as an organic, adaptive, flexible tool a company uses to create business value. A dogmatic approach to any business model is doomed to fail as the company’s environment (both external and internal) inevitably changes. A true visionary CEO will constantly reevaluate her or his company’s business model and adjust it when necessary.

Otherwise, by the time change comes, it may be too late. I hope that’s not the case for Dell.

“Charlie’s Angels” in five minutes for the attention-span-challenged.

In a previous post, I talked about the loss of separation of work and life, the fact that we are now able, and do, work at all times from all places.

Another related effect of information technology is that of the shortening attention span. IT increases our efficiency, not by enhancing our brains (that’s still in the works), but by complementing them. Our brains haven’t changed. We still can only store 7 plus or minus 2 items on our short term memory. But technology can do all of the low-level information processing for us, allowing us to be a lot more productive while still using our slow-as-an-abacus brains to do only higher-level information processing.

Being human, however, we still constantly want to do more in less time. The result has been that our attention span has become shorter and shorter. The act of leaning back and allowing ourselves to be immersed in a slow and long experience (whether it’s reading a book, watching a movie or a speech, or listening to music) is giving way to accessing quick and short snippets of information for entertainment, education, work, or anything else.

Hence, the rise of the 2-minute clip on YouTube or the “elevator pitch” of the entrepreneur. The latter, a pitch of an idea in the time it takes to ride an elevator, became famous during the dotcom boom when there was an entrepreneur around every corner and venture capitalists had very little time to devote to each one of them.

Today, there’s an article in the NY Times about Sony is shrinking down entire episodes of classic shows like “Charlie’s Angels” and “Starsky and Hutch” to 3.5-5 minute “minisodes.” They will be part of a new service called the Minisode Network which will be a dedicated online channel, though the minisodes will first air on MySpace.

I, for one, am all for conciseness and brevity. In fact, in my e-business class, I insist on presentations of my students’ business plans that are no longer than 15 minutes, and written plans that are 15 pages or less. As I tell my students, the people who will read them or hear you talk will quickly move to the next thing if you go too long. But my need for quick information pieces goes beyong business presentations. There is a hilarious show on the Cartoon Network’s Adult Swim called “Robot Chicken.” It’s a bunch of stop animation shorts, some of which are just one or two seconds long. They are some of the funniest stuff on TV. And it’s just the right pace and length for my attention-span-challenged brain.

It takes a village to make a laptop.

The New York Times today report that Amazon will expand its program called Fulfillment by Amazon which allows independent sellers to use its network of distribution centers to fill their orders. Up to now, it was available only for sellers who listed their products on Amazon but they are expanding it to independent sellers everywhere, even eBay.

Amazon’s distribution system, with more than 20 giant warehouses and a well kept secret inventory management system, is something that the company is very proud of. But they also recognize that in today’s world, it’s just another service that can be made leveraged to create revenue outside of Amazon’s own core operations. Sure, they may be making it easier for some sellers who list their products on competitor sites (like eBay) to sell their stuff and in that way increasing their competitors’ business and profits. But they also know that these are sellers who would have sold their products on the competitors’ sites anyway. Instead of trying to hijack sellers by making it mandatory to list items on Amazon in order to use Fulfillment by Amazon, they are letting them sell anywhere they want and they are making money by providing them with a service they already know how to do very well.

In today’s highly networked business environment, this is only a sign of things to come. It will become less and less possible for companies to maintain their competitive advantage by producing and bundling all their services within themselves. Instead, market mechanisms will prevail and more and more services that were traditionally kept within a company will be bought and sold in a networked market environment. So, what will be left of the traditional company, you ask? Well, things like the end physical product (the toaster, the TV, the car) with its brand will be what the company is all about. Same thing with the end service product (the marketing campaign, the tax preparation). But how that final product or service is put together and delivered, where the parts come from, who coordinates the activities, and so on will all increasingly be coming from outside the companies.

The reason is simple: lower transaction costs. These are the costs of search and coordination which in a highly integrated and networked environment decrease dramatically. It has become easier to go out into the market and outsource a service that up to now had to be done inhouse. The result can be lower cost and higher quality, especially since this service can now be provided by another company that specializes in it (hence the higher quality) and can take advantage of economies of scale (hence the lower price). That’s exactly what Amazon is providing with the service of order fulfillment.

 This isn’t speculative fiction by the way. This is happening right now. By the time your customize Dell laptop arrives at your doorstep, dozens of companies have contributed with parts, knowledge, labor, and delivery services to get it there. It didn’t all get produced in a giant Dell factory from beginning to end.

eBay: The other golden child.

In my previous post, I wrote about Amazon and how innovative and daring it is in its strategic moves. However, there’s another company that has been equally impressive: eBay. The other golden child of the dotcom era is also a case study on doing things well (and some not so well).

First, eBay was a marvellous idea to begin with. Auctions are a great price discovery mechanism, because in theory the seller gets the highest price anyone is willing to pay for their product and the buyer gets the product for a price that is either at or below what they want to pay for it. I say, in theory, because auctions need to have a critical mass of buyers to really work. In the physical world, the problem was always getting all the potential buyers in one place at the same time. So, they were limited to art and collectibles, livestock, impounded cars, and so on.

eBay’s founder realized that he could use the web as a virtual meeting place for auctions. So, as long as someone could go online, they could be “present” at an auction. He also recognized that people sell their own things all the time. One person’s trash is another person’s treasure. Putting the two together, eBay created the largest auction based garage sale in the world.

This was an amazing business model. eBay carries no inventory. All it does is match buyers and sellers through an online auction and charge small fees and commission for sales made. Theoretically, it was profitable from day one.

So, the first lesson from eBay is recognizing the potential of IT to create new business models. Sometimes, those business models are extensions of models that have existed for a long time (as in the case of auctions). It’s all about leveraging the technology to enable new or improved business models which may simply provide marginally additional business value, but additional nevertheless.

The second lesson is in what eBay has done since their hugely successful online auction business took off. As this recent article in Business Week describes:

Since shelling out $1.5 billion in 2002 to acquire online payment processor PayPal, eBay (EBAY) has aggressively expanded into areas well beyond its core business of charging people fees to auction off goods via the Internet. Over the last five years, a spate of acquisitions—some of which are just now generating significant profits—has made the company into something of an enigma. EBay is a Web auctioneer. It’s an online payment processor and bank of sorts (PayPal). It’s a ticket seller (StubHub). It’s a global Internet telephone service (Skype). It’s a classified ad service (Kijiji).

Now eBay is said to be moving into the social search business. Tech industry blogs such as GigaOm and TechCrunch are buzzing that eBay is in talks to acquire StumbleUpon, a popular site that lets users find other Web sites based on their interests and the recommendations of others. Both eBay and StumbleUpon declined comment.

As far as I’m concerned, that’s not an enigma. It’s a basic concept that every MBA student learns on day 1 in B-school. It’s called: diversification.

In this case, it’s what I would call integrated diversification. The different acquisition and areas in which eBay has expanded are not only related, they are very complimentary to their basic core activity: online auctions. eBay customers can pay with PayPal and communicate with each other using Skype to talk about products bought and sold. The uses for StubHub, Kijiji, and StumbleUpon are less obvious. They are all market makers, just like eBay. They create markets for tickets, all types of services through classified ads, and information/websites respectively.

Not that much of an enigma after all, is it?

Can Amazon do no wrong?

Amazon released its earnings report yesterday and things are going well for Bezos and co. Amazon’s quarterly profit increased 38 percent, to $145 million, compared with $106 million in the period last year.

Amazon is such an interesting case study on running a business, online or offline. They’ve done so many things right (and quite a few things wrong), I could usually spend a whole class session, if not more, just talking about them.

First, they started with the right product: books. They are a commodity of uniform value, an information-intensive product that benefits from the research-friendly web, easy to ship, and universally in demand. Not to mention, that in the early days of e-commerce, before everyone went online, those who would buy anything online were more likely to be big readers: geeks and heavy computer users.

So, using the right product, Amazon quickly built a very strong brand. In fact, Amazon’s brand is so strong, that when I say the word Amazon out of context in any conversation, I would bet that close to 100% of those who hear me will think of Amazon.com and not the Amazon river or rainforest.

But Jeff Bezos didn’t stop there. Against all odds and against all rational advice, he went on to expand Amazon in breadth and create a giant department store that now sells virtually everything under the sun, from books and cds to computing infrastructure to other companies, something called Amazon Web Services (hey, if you’ve spent millions building an amazing infrastructure, why not make money by farming it out?).

Things weren’t always good. Amazon came close to collapsing many times and it seemed that the dotcom’s golden child would follow all the other failed e-businesses when Bezos had another great idea. He figured that people were reluctant to buy things online from Amazon because shipping and handling fees made them too expensive. So, why not ship products for free for all purchases above $25? Keep in mind that the “handling” part of those fees is a large source of revenue for all companies that ship products.

The results were dramatic. Sales shot up and Amazon became profitable again. Why? Well, I can tell you from my own personal shopping experience that very often I go to Amazon to buy something and I fall short of the $25. What do I do? I buy one or two more things to get me above $25 and save the s&h costs. This translates into a lot more in profit for Amazon than if they had charged me for s&h. Don’t forget that a company like Amazon that ships millions of products gets very big discounts from the delivery services it uses.

Last year Bezos went a step further. With Amazon Prime, he offered second-day delivery for most products for $79 a year. Again, there were doubts all around (including from me). But it seems that Bezos can do no wrong. These new earnings show that the program has most likely been a big success.

Amazon’s innovations go beyond pricing their products and services. It was one of the first to provide XML feeds of their product pages and allow third parties to use those feeds in applications that can be used by anyone to gather and compare product information. This created an entire ecosystem of service businesses around Amazon’s market. It is also one of the major “incubators” of small businesses (eBay is the other one), with its Amazon Marketplace, where thousands of small businesses can sell goods that directly compete with Amazon’s own, while, of course, paying fees and commissions to Amazon.

I could go on and on but I’ll stop here. For all students of business, Amazon is an example of vision, innovation, effective strategic use of IT, and calculated risk.

Want to share my iPod?

Walking around New York city, I constantly see teenagers who share an iPod and a single pair of earbuds. They each put one earbud in one ear and in that way they can both listen to the same music while still being able to talk to each other.

Why is there no better solution? I think that a great innovation would be a pair of headphones that connect to an MP3 player wirelessly (most likely Bluetooth since WiFi is such an energy hog) and both pump out the same music for that single player. But the key innovation would be the communication part. Who wants to walk around the mall with their BFF while both listening to the same music if they can’t exchange the day’s gossip?

 So, give the wireless headphones a small mic (like the one used in wireless headsets for cellphones) and allow the conversation between the two headphone users to happen in a shared (and private) frequency.

Now, if the digital music player doesn’t have Bluetooth embedded in it (like the iPod), create a separate transceiver that will attach to the player and communicate with the wireless headphones.

I personally love walking the streets of New York listeing to my iPod. The music becomes the soundtrack of my day and many times it even determines my mood, depending on what iPod’s shuffle will bring my way. The idea of sharing that soundtrack with someone else as we both walk around and still able to talk to each other sounds really exciting to me.

Steve Jobs, are you listening?

Seeing data with your tongue.

The last issue of Wired magazine had this fascinating article about how researchers are taking advantage of the plasticity of the brain to use technology to either enhance human senses or to even create totally new ones. For example, they have the story of a person who used a “feelSpace belt” to acquire a sixth sense of direction, like the one that birds have to always know how to fly north or south.

For six weird weeks in the fall of 2004, Udo Wächter had an unerring sense of direction. Every morning after he got out of the shower, Wächter, a sysadmin at the University of Osnabrück in Germany, put on a wide beige belt lined with 13 vibrating pads — the same weight-and-gear modules that make a cell phone judder. On the outside of the belt were a power supply and a sensor that detected Earth’s magnetic field. Whichever buzzer was pointing north would go off. Constantly.

“It was slightly strange at first,” Wächter says, “though on the bike, it was great.” He started to become more aware of the peregrinations he had to make while trying to reach a destination. “I finally understood just how much roads actually wind,” he says. He learned to deal with the stares he got in the library, his belt humming like a distant chain saw. Deep into the experiment, Wächter says, “I suddenly realized that my perception had shifted. I had some kind of internal map of the city in my head. I could always find my way home. Eventually, I felt I couldn’t get lost, even in a completely new place.”

Another fascinating example describes how some researchers are using a device that basically hooks up a camera to a set of tiny electrodes that are attached to the tongue. Visual images are interpreted as electric current against the tongue. When people put on this device and have their vision totally blocked, they can quickly learn to “see” with their tongue. It’s pretty amazing stuff.

This is all based on the fact that our brain has the ability to shift resources around. If the visual cortex is damaged or doesn’t receive information for some reason, the brain can refocus a different part of it to start handling processing of visual information. This is why rehabilitation after a stroke or other major brain damage can restore whatever senses were compromised.

This is very promising when it comes to aiding those who are impaired in some way or even creating “enhanced” humans who can, for example, find their way around no matter where they are. But it also hold promise in a different area: enabling humans to use their senses to understand complex data sets.

Humans have a very hard time interpreting multidimensional data. Give someone a two dimensional table (rows by columns) and they can easily understand the data and make decisions on them. But add a third dimension or a fourth or fifth and it becomes very hard to represent the data in a way that humans can work with. That’s because we depend only on vision to see the data and then on our brain’s capacity to crunch multiple numbers simultaneously, which is a notoriously small capacity.

So, how about bringing in more senses? How about allowing multidimensional data to be perceived not only by sight but also by touch, taste, or even new senses, such as that of direction? Basically I’m talking about creating virtual reality environments where the environment is not a realistic replica of the real world but a representation of a multidimensional data space.

This is science fiction stuff, I know. But if a blind person can go mountain biking simply by clicking his or her tongue and using a sonar-like sense called echolocation (true story), why can’t I see, hear, touch, and taste my way through a complex data space to find solutions or make optimal decisions?

Watching the cheese.

This one is from the section on “Weird interactions of humans with technology.” The NY Times reports on Cheddarvision TV, a website where one can go and watch cheddar cheese age. That’s it. It’s just a webcam on a round of cheddar that just sits there.

 Apparently, it’s a huge hit. It has been viewed over 900,000 times so far (and I’m sure many more since the NY Times article). But people go even further.

As befits an inert object of obsession, the cheese has become a blank slate upon which admirers can express their passions and idiosyncrasies. Poems and songs have been written about it. It has been invited to a wedding. At Easter, it received an anonymous gift of chocolate and decorative chicks.

Hmmm… I’ve been trying so hard to increase my blog readership. I guess all I need is a piece of cheese and a webcam.

But seriously, people are strange. They’ll find meaning, comfort, or excitement in the most mundane or the weirdest things. Technology just makes more of them available. If I was Tom Calver, the owner of Cheddarvision TV, I’d start showing Google ads on the site. Though he does offer viewers the chance to buy his cheeses online.

In typical NY Times fashion, the article on Cheddarvision TV ends on a “philosophical” note:

“It’s a security,” he said. “It’s something that’s there 24 hours a day. I heard of someone who said they looked at it before bed and found it a nice, comforting thing. You should really talk to a psychologist.”

I would have to agree.

Radical transparency and the death of spin.

I often talk to my students about the power of today’s networked information environment in shaping reputation. Keeping secrets has become extremely difficult, for businesses, politicians, and even 15-year-olds. All you need is one person (often yourself) to put the information in digital format and post it somewhere where others can read it. The network effect can be frightening. In a matter of minutes, it can become world-wide news. And even if you take the information down, it will always exist, cached on servers everywhere just waiting to be found. The result can be tremendous pressure on companies and politicians to clean up their act and be accountable. And I’ve always told my students, some of whom are budding CEOs and CIOs themselves, that the way to control your reputation is not by controlling information that is made public, but by making more information public yourself.

Well, enter Wiredmagazine, which has done a fantastic job in reporting on this idea and giving it a cool name: radical transparency. It has several articles on the subject but this one in particular tells the story beautifully. In fact, the whole article was written in the author’s blog inviting reader feedback, some of which is featured in the printed article. As the article’s author, Clive Thompson, says:

The Internet has inverted the social physics of information. Companies used to assume that details about their internal workings were valuable precisely because they were secret. If you were cagey about your plans, you had the upper hand; if you kept your next big idea to yourself, people couldn’t steal it. Now, billion- dollar ideas come to CEOs who give them away; corporations that publicize their failings grow stronger. Power comes not from your Rolodex but from how many bloggers link to you – and everyone trembles before search engine rankings.

Some of you may be thinking: What about industrial secrets? The secret recipe of Coke? As Clive points out:

[Some of my blog readers] enjoyed ripping apart my new theories. Several pointed out that secrecy can be necessary – CEOs are often required by law to keep mum, and many creative endeavors benefit from being closed: Steve Jobs came up with a terrific iPhone precisely because he acts like an artist and doesn’t consult everyone. In fact, secrecy is sometimes part of the fun. Who wants to know how this season of 24 is going to end? It’s not secrets that are dying, as one reader named gjudd noted, but lies.

Secrets can be useful tools for competitive advantage. Even though there are many cases when even those secrets are better left in the open. Just look at the success of all the open-source software out there.

So it’s not secrets that are dying. It’s spin control that’s dying. This spells trouble for PR firms.

What’s making me even more excited is the impact this is already starting to have on politics, where transparency is a dirty word and spin control is god. Remember George Allen’s “macaca” comment that got posted on YouTube and cost him a Senate seat?

Politics is going to be fun again.

CS is dead! Long live IS! Part 2 (Or why Information Systems is currently the most undervalued career path)

I just read a very interesting article that talks about how fears of IT-related jobs being offshored have led to a huge decline in students majoring in IT-related subjects. I know this first-hand. The number of IS majors has dropped significantly at my school since the dot-com bust around 2001. In 2000-2001, I had 120 students and a waiting list for my graduate e-business class. Now, I barely make it to 30 students.

What the article also mentions and which I also know first-hand is that companies are dying to hire more individuals with IT-related skills and education, but there’s nobody to take the jobs, something I’ve also seen first-hand here at Baruch College where I work:

On Tuesday, Martha Pollack, chairwoman of the computer science and engineering department at the University of Michigan, said her department is down to about 350 students today from nearly 700 several years ago.

What perplexes Chari [the head of an information technology department at the University of South Florida] and other academics is that there are more IT-related jobs available today than ever before. For example, the federal Bureau of Labor Statistics lists IT-related jobs as some of the most in-demand professions. Computer-related professions occupy three of the top 10 fastest-growing occupations between 2004 and 2014, according to BLS projections.

The combination of low student enrollment and high business demand is having a profound effect on business, university professors say. On a recent weekday, JPMorgan Chase Vice President Jim Meinen visited one of Chari’s MIS classes to drum up interest in his company.

He related a story about how JPMorgan Chase recently sought applicants for 10 technology interns in Tampa, but only four students applied. That’s despite the “serious money” that the bank was offering interns, Meinen said. He wouldn’t be more specific on intern pay.

Even more interesting to me is the following excerpt from the article:

Businesses are telling Chari that they need fewer basic programmers and more IT-professionals with management skills.

Where basic programming can be done anywhere in the world, Chari says, businesses can’t easily offshore jobs in “project management,” in which an IT worker coordinates IT projects, Chari says.

As I said before on this blog, it’s the people who have the knowledge and skill to manage the technology that will always be in demand. As the article says, a lot of programming and other computer science or engineering related activities could be offshored (though I know many companies who rue the day they decided to do that) but management of the technology needs to be done in-house and locally.

I hope that eventually the students will realize how big the demand for IS professionals is and the number of IS majors will increase. In the meantime, I think all of us in the IS field need to learn a little from our colleagues in Marketing and advertise our product better.