As policy makers around the world try to replicate the Silicon Valley model of entrepreneurship (e.g. London with its “Silicon Roundabout”), I would argue that Silicon Valley also has a few lessons to learn from the German model of sustaining innovation by SMEs.

Germany’s track record for innovation has been and remains stellar: Germany ranks third in the number of patents per million inhabitants and is in the top ten countries in R&D as % of GDP [1]. A large part of this innovation happens inside the small and medium sized companies (SMEs).

Many industry insiders have recently questioned as to how innovative Silicon Valley really is. What lessons can Silicon Valley draw from the German SME model of sustainable business models and sustaining innovation?

1. Focus on what you know best.

These SMEs – the so called “Mittelstand” companies – are generally focused on stable niche B2B markets (90%), are small in size, but often command good market shares in the global market for their products [2]. This specialization allows them to fend off direct competition from global giants [3].

Silicon Valley VC investors might pass on attractive investments because the market appears too small at first glance. These niche markets may actually be where the most sustainable innovations reside. Silicon Valley has a bias for low hanging “consumer” fruits, which are quick to commercialize and quick to exit. Yet, sustainable innovation often happens in “unsexy” and seemingly niche B2B segments [4]. 

2. Become profitable quickly to avoid giving up control. Have a long-term view.

German SMEs do not have much access to venture capital funding and rely on bank loans to finance their growth. This pushes them to become profitable much more quickly, and allows them to retain more ownership and thus control. Growth through internal cash flows makes them less dependent on funding markets and external decision-makers.

This also allows SMEs to retain ownership through generations – many SMEs are family-owned – and adopt a long-term vision and “multi-generational thinking” [5]. German SMEs are not under the pressure by VC/PE investors to exit. In Silicon Valley, start-ups do not have the luxury to think long-term and are under pressure to exit quickly.

3. Focus on building processes for continuous internal innovation.

Given their long-term perspective, German SMEs can build processes to foster ongoing internal innovation and R&D.

Figure 1. German SMEs: indexed comparison to EU average

 GermanSMEs

SMEs aim to codify a large part of their innovation through patent submissions. A low employee turnover rate also allows SMEs to retain process knowledge. Another important enabler to innovation is supplier and customer intimacy. Indeed, German SMEs are willing to transfer knowledge, do joint R&D and training with their suppliers, which helps training. This is made possible through the existence of local clusters and informal networks [6].

Figure 2. German SME supplier intimacy

ImportanceOfCooperation 

4. Go, be and stay local. 

Contrary to the dominant Silicon Valley cluster, German SMEs are spread out geographically (70% are based in the countryside [3]) and truly integrate into their local ecosystem.

Indeed, they build partnerships with local universities and technical schools, which develop programs specifically tailored to their hiring needs. SMEs hire and invest in employees when they are young through apprenticeships and scholarships at local technical schools. SMEs also invest in their local communities, for example by sponsoring the local soccer club. SMEs have a lasting socio-economic impact on their communities. This creates a long-term bond, and low employee turnover. This also substitutes for expensive, dilutive share compensation schemes, which fragment ownership at US start-ups.

This localization has direct business benefits. Namely, the local savings banks provide supportive capital, and are lenient in times of crisis. Because they are all part of this local cluster, SMEs and their suppliers form strong interdependent relationships, and generate a lot of benefits from knowledge spill-overs, shared R&D, and synchronization of internal production processes [6].

Finally, as a big employer, SMEs can command influence, which makes it easier to negotiate local tax breaks.

Google is similarly trying to create a sense of community through the Google Campus. Smaller US firms could reap similar and additional benefits by fostering local clusters, investing in local communities, building supplier intimacy, and investing in their people.

In summary, if Silicon Valley wants to foster sustaining long-term innovation, it can draw a number of valuable lessons from German SMEs and their approach to innovation.

Sources:

[1] http://www.slideshare.net/brisbourne/dfj-esprit-why-european-vc-evca-study

[2] inge watertechnologies, GmbH (9-812-002)

[3] http://www.economist.com/node/17572160

[4] Silicon Valley’s Trouble with innovation, MIT Technology Review, July 16, 2012

[5] http://www.midmarket.org/blogs/mmi/2012/october/germanmittelstand1

[6] Source: “Making a difference: German SMEs and their financing environment” (DB Research, March 2013)

 


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“Every step you take”…

This is the line from one of the most popular The Police songs (Yes, I do love Sting), and the headline for the recent The Economist article. The topic is pretty intriguing and potentially affects everyone (whether this “everyone” actually wants it or not). So let me start with a broad question – what are the benefits and threats of the increasing amount of personal data available in the web? To which extend the ubiquitous data collection can be limited? To which extend the data usage then can be restricted? What will be the implications of the new wearable devices like Google Glass? And whether it all actually matters given “potential” FBI access to Google, Facebook, etc. servers?

It does.

The answer though likely varies across countries given different social norms, users’ awareness, and government interventions into personal lives of its citizens. There was quite a buzz around this topic during the World Economic Forum. The key question was: how to approach personal data so that it encourages innovation, but also protects the privacy rights?

Let’s look at some data collection and data usage benefits.

Healthcare seems to be the natural pick. With the ability to monitor physical condition 24/7 (blood pressure, pulse, sleeping pattern), analyze drugs effects on the scaled aggregated level, to combine clinical data with genetics, we can not only achieve better treatment results, but move towards preventive and personalized medicine much faster. 23andMe does it already with the personal genome, and though it’s only the beginning of the journey, some practical results can be obtained already. And there is a variety of companies who do wearable devices for pregnant women or elderly in order to monitor healthcare condition for those who are under-risk, and make the timely actions when necessary. Will government be the next player in this space?

Safety might be the next one. Ubiquitous recording on the streets, in the bards, in the metro, combined with face-recognition might help to identify criminals. But not only.

So let’s now turn to “the dark side of the moon” (Pink Floyd line this time).

Do we really want our every move to be tracked? How many suspicious spouses or potential employers will start taking advantage of it? Or let’s take the healthcare data – how soon will the insurance companies start price discrimination?

Or let’s look at it from the social standpoint: if by wearing the Google Glass one can immediately identify another person: the name, work, friends, favourite movies, and music, what the social like gonna be like? Brrrrr…

So what is the solution, if any?  People at The World Economic Forum agreed upon shifting from governing the data itself to data usage. Seems reasonable. Yep. But possible?…

Resources:

  1. “Unlocking the Value of Personal Data: From Collection to Usage”, World Economic Forum report, February 2013
  2. “The people’s panopticon, The Economist, November 2013 http://www.economist.com/news/briefing/21589863-it-getting-ever-easier-record-anything-or-everything-you-see-opens
  3.  “Every step you take”, The Economist, November 2013 http://www.economist.com/news/leaders/21589862-cameras-become-ubiquitous-and-able-identify-people-more-safeguards-privacy-will-be

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LINE may not be well-known in the US, but it has been exploding in Asia, Middle East and Europe since its launch in 2011. LINE is a messenger app with 300 million users worldwide and its growth is accelerating. The last 100 million users were added in mere 4 months. Some argue that LINE may replace Facebook or Twitter as the most popular social platform. LINE is expected to go public next year with an estimated valuation of over $10bn.

What is LINE?

LINE is somewhat similar to other messaging applications, including WhatsApp, KakaoTalk, or Facebook messenger. LINE allows users to send text, share photos/videos, and make phone calls/video calls to another LINE account(s) for absolutely free.

What’s different is that LINE also has a huge library of “stamps” – a small picture of a character that describes emotion, thoughts, actions, and objects. Stamps act as a way to mimic real human interaction by communicating very subtle points. Some of these stamps are sold for a price (usually $1 for a set of 30 stamps) and LINE shares revenue with its media partners. This has been the major source of revenue ($132M for 2013 Q2) since its launch.

Another difference is that LINE is quickly moving towards platform strategy. The initial version of LINE was only able to handle messaging, but now that LINE is installed in virtually everybody’s smartphone, LINE started to expand its offerings. LINE Mall offers online shopping, LINE Game is consistently topping ITunes rankings, LINE Camera competes against Instagram, and LINE Card is a dominant e-card service in Japan. All these services that be accessed thru LINE application and more and more people are using them.

Birth of LINE and its mobilization strategy

The birth of LINE is somewhat interesting. NAVER Japan, a subsidiary of Korean internet company, was in the midst of developing a photo sharing application when a big earthquake hit Japan in March 11th, 2011. As mobile network was disrupted, people formed lines in front of public phone booth (public phone act as emergency line in Japan and never gets interrupted).  Realizing there is a strong need for efficient and easy communication; the development team switched their focus and started developing messaging application. LINE was launched 3 months after the earthquake.

LINE faced a classic chicken-and-egg problem and tackled to solve the problem in two ways; technical and marketing. LINE has an auto-sync function that allows user’s existing phone book to automatically sync to LINE contact list. Even if I was the only one using LINE, I could still text my friends using LINE (my text would appear as a regular text on their screen). As I don’t have to bother importing phone book to my LINE account, once I started using LINE I had no reason to switch back. Because LINE texting was absolutely free, people quickly switched.

On the marketing front, LINE initially focused on high school girls because they are the ones who often start new trends in Japan. LINE created cute “stamps” that high school girls would love and solicit user feedback very frequently. Once high school girls adopted LINE, it spread to college girls, junior high school girls, boys, 20s, and the rest of the population.  LINE dominated Japanese market in less than a year.

 LINE’s future and competition

 LINE deliberately focused on expansion of its user base and not on monetization strategy. LINE is believed to be already making profit with its stamp and game sales, but the real monetization is expected to come after its IPO. LINE may start selling advertising space like Facebook or open its platform and charge a fee to whoever wants to access its user base.

LINE’s biggest competitors are WeChat (over 1 billion users, mostly in China) and WhatsApp (mostly in the US and Europe). As there is a strong network effect, messaging app is likely to follow the same path of SNS and one or two players will take the dominant positions. Demographic and social trends are in favor of LINE because LINE has a dominant share in Asian markets, where smartphone penetration is expected to skyrocket in the next few years. Whoever comes out as winner will enjoy the similar power as Facebook today.

References:

http://linecorp.com/en/

http://thenextweb.com/apps/2013/08/08/line-corp-brings-in-132m-of-revenue-in-q2-2013-as-its-messaging-app-contributes-76/

http://www.digitaltrends.com/mobile/messaging-appline-and-its-us-efforts/

http://www.cubrid.org/blog/dev-platform/the-story-behind-line-app-development/


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Gaming Google: Is Search Engine Optimization Really for Naught?

Driving website traffic and site discovery is pervasively a difficult task for ecommerce companies. While our cases often list utilizing Google’s algorithmic search engines, we have discounted the method as ineffective.  There are some companies that excel at SEO though, what are their secrets? The following is a roadmap for optimizing a hypothetical cosmetics company’s website.

 Help search engines crawl your site by following this Advice from Google:

  •  ·Page Content:

o   Use Title Tags: Use brief, descriptive title tags to accurately name each page on a website.

<title>MoistureCare: 6 Ounce 100% Shea Butter, $20.</title>

o   Use Meta Tags: Generally a sentence to a short paragraph describing each page and often used as a Google “snippet” under the search result

<META NAME=”Product Description” CONTENT=”Premium 100% Shea Butter sourced directly from Ghana, Africa. Manufacturer: MoistureCare, Category: Cosmetics, Price: $20, Size: 6 Ounces”>

o   Use heading tags to indicate page content and relative importance (focus on structure rather than style[1]; <h1> tags are more important than <h6> tags farther down the page)

o   Images:

§  Utilize filename and “alt”[2] attributes (especially when image serves as a link)

§  Make filename descriptive and extension match file type

§  Stick to JPEG, GIF, PNG, BMP, and other commonly supported formats

§  Consolidate images in single directory to simplify access path

§  Create image sitemap

o   The more links leading to a website, the higher it ranks.

Think about working with partners to improve rankings. For example, MoistureCare’s quality products work to lessen stretch marks and alleviate dry skin. Potential partners include: pregnancy & weight loss blogs, dermatologists, and extreme sports blogs (especially winter sports). Provide samples to blogs for reviews. 

  • Page Structure:

o   Include “breadcrumbs”[3] at top of page

MoistureCare > Product Page > 100% Shea Butter > 6 Ounce

o   Utilize word based internal links rather than drop down menus (internal hyperlinks using anchor text)

“100% Shea Butter: Base for homemade lotion recipe

o   Access Keyword Tools to include the appropriate mix of high search/low competition keywords

“Shea Butter Recipes”           Low Competition    6000 Monthly Views

Potential Use: Include a page of recipes mixing MoistureCare shea butter with citronella and other ingredients for fun homemade gifts

“How to Use Shea Butter”    Low Competition    4000 Monthly Views

Potential Use: Include How-To videos of people using shea butter on hands, hair, etc

o   Separate text from images

o   Use concise and descriptive anchor text and make hyperlinks obvious

Check us out on today’s Maternalistic Blogpost

  • ·       Website structure:

o   Include (sub)category pages

o   Create and Send XML Sitemap to Google

o   Make user friendly HTML sitemaps

o   Customize 404 error page to guide user back to root page and prevent search engines from accessing unavailable pages

Sorry; we made a mistake, but we want to help! Is this what you were looking for: www.moisturecare.com? If not, please let us know here.

o   Improve structure by using words in links (preferably lowercase) that mirror a simple directory structure (to avoid 404 errors on truncated URLs)

www.moisturecare.com/sheabutter/6ounce

o   Identify canonical pages[4]

  • ·       Blocking Content:

o   Remove sensitive content, do not simply block it

o   Block search pages

o   Use Robots.txt Generator to block content (or alternative blocking methods)

o   Consider automatically adding “nofollow” tags to user generated content (to avoid passing your reputation on to third party sites)

  • ·       Appearing in Mobile Searches

o   Submit mobile sitemap to Google

o   Allow the crawler, Googlebot-Mobile, to access your site

o   Ensure your mobile URL’s Doc Type Definition is in XHTML Mobile or Compact HTML compatible format

o   Either redirect mobile users from desktop versions (and vice versa) using different URLs, or reformat content depending on the type of device (using the same URL)

After all that, what do you do? Test the impact!



[1] <em> and <strong> tags should be used instead for italics and bold respectively

[2] Substitutes image with text when image does not load

[3] Internal links that allow visitors to navigate pages more easily within the website

[4] When multiple links direct to the same content, the canonical page is the preferred site page.


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In recent years, there’s been an increased amount of scrutiny on online gambling and in particular, online poker. The states of Nevada, Delaware and earlier this week, New Jersey have approved and launched online gaming markets.

POLITICAL CONTEXT
There has been increased scrutiny from government players with Republican politician, Joe Barton advocating the roll out of nationwide law that will help regulate and legalize online gaming. Barton had introduced a bill in the US Congress that would help create a licensing system for online poker companies. Whilst, this was welcomed by many, it was also simultaneously opposed by many and this can be seen by the fact that the bill was introduced in July and has not made any progress in the last 4 months. Making things illegal can increase the price of the illegal activities – there have been instances in the past where the prohibition of marijuana or the prohibition of texting & driving, went on to increase the occurrence of the prohibited activity post the passage of the law. Pro-online gamers have supported a controlled and closely monitored legalized online poker world. Whilst this is easier said than done, the golden question is whether the government can help the online poker companies to take baby steps in the near future?

ECONOMIC AND ETHICAL CONTEXT
Whilst we are still recovering from an economic recession, arguments can be made to support banning online poker – gambling can easily become an addiction and cause serious mental and economic harm. Having access to online poker via the internet can provide easy access to the wrong individuals which can only exacerbate the current economic condition. But one can argue that similar addictions currently already exist in the form of the lottery, cigarettes, alcohol, drugs etc. Furthermore, the underground gambling market without access to casinos can potentially operate in an open monitored environment and hence enable the government to collect taxes on winnings while enforcing necessary regulations to protect consumers. There are ways to curb abuse of IP addresses, credit cards, age of players etc. by monitoring patterns of play among many other sophisticated security measures. However, is this enough to give parents the comfort that underage children will not have easy access to online poker?

 

COMPETITION
The best form of innovation eliminates wastage in the system and removes inefficiencies. We have seen e-commerce disrupt the traditional brick and mortar retail model benefiting consumers tremendously. E-retailers are able to pass down costs savings from zero physical store rent to consumers in the form of lower prices, better selection of products and quicker & convenient service. This very concept can be applied to online poker — the casino business is a high fixed cost business which runs continuously regardless of the occupancy rate or utilization level. By providing consumers with the ability to play poker online, consumers are able to save money on travel and hotel charges and casino companies can save on rent and other fixed/variable costs. It’s a win-win for both sides of the network. Also, legalization of online poker will be a breath of fresh air for dynamic and entrepreneurial companies such as Zynga, thereby enabling and supporting innovation in the gaming industry.


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