Decoding the new economy

Is Groupon the small business saviour?

Does the deal of the day change the way we do business?

Since Google’s rejected offer of $6 billion dollars to buy deal of the day website Groupon, there’s been a lot of discussion of just what Groupon and the hundreds of similar services mean to online commerce and small business.

Groupon’s CEO, Andrew Mason, even went as far as to declare his organisation the “saviour of small business” on the Charlie Rose show.

John Battelle, founder of The Industry Standard and co-founding editor of Wired, examines Groupon’s business model on his Searchblog and concludes it will be the small business platform for the mobile Internet just as Google are to the web and Yellow Pages were to the telephone.

The problem with these ideas is scale. If every small business had the capacity and wanted to be on Groupon, the service simply couldn’t cope and the model breaks down.

In my area there are, according to the Yellow Pages, 115 hairdressers in my district. Even if Groupon were able to geographically target me to my neighbourhood, they’d need a third of the year just to cover hair stylists which is tough luck for the lawn mowing services, plumbers, patisseries and other small businesses that may also want to advertise on Groupon.

Which takes us to customer motivation, when I’m looking for a haircut, hedge clipping, cleared drain or chocolate gateaux I’m not particular driven by finding a bargain – if I do that’s great – but it’s not my motivation to buy.

Groupon, and the other deal of the day sites, are driven by customers looking for discounts, and the key to business survival – particularly in retail – is not to depend on discounts to drive your business. So business models that rely on discount hungry customers, or cashflow desperate merchants, are always going to be limited.

Groupon is a great business and it may well turn out to be worth $6 billion or even $36 billion. The barriers to entry are not so low as anyone who thinks executing an idea like this is “easy” doesn’t understand the work involved in building a local sales team like those of Groupon or Yellow Pages.

It could well be that Google wanted to buy Groupon simply for that sales team. The failure of Google to properly execute on their terrific local search product has baffled me for some time and the only explanation I can put down to it is what Silicon Alley Insider’s Ron Burk attributes to Cash Cow Disease, where companies like Google and Microsoft find themselves paralysed by the rivers of cash flowing into their businesses.

Deal of the day sites have an important role to play for businesses looking at demand management or clearing inventory and Groupon is a good business just like Clipper Magazine or Shop-A-Dockets, but to claim they are going to be the next great revolution for small business is giving too much importance to these channels.

There’s no doubt though that small businesses will be the big winner when we get local search on the web right. When we get it right we’ll probably see the hyperlocalisation model for the media start to take off as well. So it could save two industries.

Groupon though is not the small business messiah we’re looking for.

Password safety

Taking a layered approach to online security is the best policy

Online news and gossip publisher Gawker Media was hacked last weekend with nearly 200,000 usernames and passwords released to the world.

The Wall Street Journal’s Digits Column tabulated the results and listed the top 50 passwords used by Gawker’s subscribers.

At first view, the reaction is to think what sort of idiot would use a password like 12345678 and would only confirm most IT and security professionals’ view that most computer users don’t protect their online details very well.

But on reflection, is using a weak password on a site like Gawker so bad? Most of the users listed have only created accounts to make a comment on one of Gawker’s websites, they aren’t using their Gawker account for anything vital and should their Gawker account be accessed the only thing the bad guys can do is post under the account name.

So if we assume that most of the 3,000 odd people that used the password 12345678 only do so for “disposable” accounts like the Gawker comments stream, then they probably haven’t risked anything at all.

In fact it makes sense to do so rather than to use a strong password which also happens to be your banking login or work account.

On my IT Queries site we suggest using a layered approach to passwords where services like Gawker, where it doesn’t really matter if the password is compromised, get a simple and easy password while sites where there are serious consequences like your online banking get strong and secure passwords.

We should always keep in mind that accidents do happen and that there are a lot of clever bad guys out there who are keen to exploit weaknesses when they see them. So security mistakes like Gawker’s will occur from time to time. The best we can do is to arrange our security so that when bad luck strikes us, the effects can be contained.

The real moral for all of us from the Gawker password hack is to take security seriously and not to use the same password on every site we visit.

What businesses should learn from Wikileaks

Cablegate forces us to question computer security and the stability of the Internet

The Wikileaks Cablegate affair has been entertaining us now for two weeks as we see diplomats and politicians around the world squirming with embarrassment as we learn what US diplomats really think about the foreign powers they deal with.

Both the leak of the cables and the treatment of Wikileaks and its founder, Julian Assange, by various Internet companies raises some important questions about the Internet, cloud computing and office security in the digital era.

Security

It’s believed the source of the leaked cables is Private First Class Bradley Manning, who is alleged to be responsible for leaking the Iraq tapes released by Wikileaks earlier this year.

The lesson is don’t give junior staff unrestricted access to your data, access to important information such as bank account details, staff salaries and other matters best kept confidential needs to be protected.

You can stop data leaving the building by locking USB ports, CDs and DVDs through either software or hardware settings on your computers and you should ask your IT support about this, keep in mind that locking down systems may affect some of your staff’s productivity.

Locking the physical means though doesn’t stop the possibility of data being sent across the Internet and access logs may only tell you this has happened after the fact. So it’s important to review your organisation’s acceptable use policy. Check with your lawyers and HR specialists that your staff are aware of the consequences of accessing company data without permission.

Incidentally, the idea that Pfc Manning was just one US Army staffer of thousands who were able to access these cables raises the suspicion that the information Wikileaks is now releasing was long ago delivered to the desks of interested parties in London, Moscow, Tel Aviv, Beijing and cave hideouts in remote mountain ranges.

Don’t rely on one platform

Wikileaks found itself hounded from various web hosting and payment providers. As we’ve discussed previously, relying on other people’s services to deliver your product raises a number of risks. Make sure you have alternatives should one of your service providers fail and never allow an external supplier to become your single point of failure.

Concerns about the cloud

This column has been an unabashed fan of cloud computing, but the Wikileaks saga shows the cloud is not necessarily secure or trustworthy. Not only is there the risk of a PFC Manning working at the data center compromising your passwords or data, but the arbitrary shutdown of Wikileaks’ services is a stark lesson of relying on another company’s Terms of Service.

Within most terms of service are clauses that allow the provider to shut down your service if you are accused of breaking the law or straying outside of the providers’ definition of acceptable use. As we saw with Amazon’s treatment of Wikileaks, you can be cut off at any time and without notice.

Amazon’s shutting down of Wikileaks is a pivotal point in the development of cloud services. Trust is essential to moving your operations to the cloud, and Amazon’s actions shown much of that trust may be misplaced.

Should you be considering moving to the cloud, you’ll need to ensure your data and services are being backed up locally and not held hostage to the arbitrary actions of your business partner.

Don’t put your misgivings in writing

So your business partner is a control freak? Great but don’t put it in writing.

Be careful of gossip and big noting

One interesting aspect of Wikileaks to date is how senior politicians like gossip and showing how worldly they are to US diplomats.

That’s great, but it probably isn’t a good idea to tell your best friend they should consider beating up your most important customer. As mentioned earlier, this little gem was probably on polished desks of the Chinese Politburo long before the cables found their way to Wikileaks.

Resist the temptation to gossip, remember your grandmother’s line about not saying anything if you can’t say something nice.

Ultimately what Wikileaks shows us is all digital communications are capable of being copied and endlessly distributed. In a digital economy, the assumption has to be that everything you do is likely to become public and you should carry out your business conduct as if you will be exposed on Wikileaks or the six o’clock news.

Wikileaks is a lesson on transparency, we are entering an era of accountability and the easiest way to deal with this is to be more honest and open. That’s the big lesson for us in our business and home lives.

What the Internet doesn’t know about us

Can the web know all about us? Should we care?

In October 2010 Newsweek’s Jessica Bennett asked the the team behind the Internet service Reputation Defender to find all they could about her.

The results were startling, within half an hour they had found her US social security number and a few more hours digging revealed her address, hometown as well as many other private details.

But ultimately the picture of Jessica’s life was wrong. The team made mistakes about her personal habits, sexual orientation and the time she spends online.

The fact the profile was incorrect shows how difficult it is for computers, or people, to understand an individual based on a series of data points.

Most of us understand that making a generalisation based on single data point – say race, gender, appearance or sexual orientation – is usually incorrect, but when we add more data points things become even more difficult.

Once we get more than one data point, we have to start weighting them. Would Jessica eating at McDonalds twice a week outweigh her exercising every morning in the eyes of an insurance company assessing her risk?

That problem could be called the Google effect where a formula, known as an algorithm, becomes so complex that it becomes bogged down under the weight of its own assumptions as we saw with Tony Russo’s gaming of the search engine’s ranking system.

All of us as are steadily revealing more about ourselves onto the web, whether we know it or not. Every time we like something on Facebook, subscribe to a newsletter or make a comment on a blog post, we are giving a little something about us away on the publicly accessible Internet.

Over time, anyone can build a picture of us. However it may turn out that nobody will want to know about the detailed, complex and multi dimensional portrait each of our lives would be.

As information about all of us becomes more available, we may enter a modern version of the Mutually Assured Destruction doctrine of the Cold War as each of us find that everyone around us has enough information to bring our careers, relationships and status crashing down.

But equally we hold equally damaging data about all our peers as well and to bring anybody down based on this information we have would be to invite the wrath of many others who know about our intimate details.

We may even find that because all of us, being human, have some damaging traits and history that employers, insurers and governments only care when you start hiding them. Today we see this with security vetting procedures which are more concerned about what we hide rather than the specifics of our foibles and indiscretions.

The assumption of those security agencies is that a self admitted gambler, alcoholic or philanderer is a manageable risk while those hiding such secrets from their families and employers are the genuine threat to an organisation.

So we come back to a society where a tacit agreement exists between us all that this dangerous power is only used when someone has acted illegally or hypocritically.

Perhaps that is the future we are heading for, where the Internet knows all but we simply choose not to access it. Which assumes it’s all correct anyway.

Other peoples’ platforms

The risks in the privately owned web range from obscure terms of service to arbitrary payment problems. This is why you need to control as much of your business’ online presence as possible.

“We have successfully established an online business, but we have run into problems with Ebay (indefinite suspension – unfairly I might add)” wrote Ralph*, an old client.

“We are pretty desperate, as this is now our sole business and we are now without an income.”

The Privately Owned Web

Ralph’s problem is typical of thousands of businesses that rely on one Internet service. Some months back we looked at “Nipplegate”, the story of a Sydney jeweller who had her Facebook page closed down because of her anatomically correct dolls.

All of these services are privately owned with their own terms and conditions along with their own corporate objectives. If you choose to use their product, you have to follow their rules – just like a shopping mall management can order you off their premises because they don’t like the colour of your socks.

The most glaring example of this is Wikileaks where Amazon, Paypal, Mastercard and Visa all threw the whistleblower site off their services for allegedly breaching their terms of services in various obscure ways.

The Terms of Service Trap

A business’ Terms of Service usually feature clauses wide enough to catch even the most honest and diligent business, this is by design as it gives management the excuse to throw anyone who makes their lives difficult, which is exactly what has happened with Wikileaks.

While Ralph’s problem is nothing like the scale of Julian Assange’s, all of these stories illustrate the dangers of relying on one service for your livelihood. Should that service change the way it operates, then any business that relies on that could be broke in hours, as many businesses that rely on Google search results have found.

Most of the Internet is not a public space, almost all of it is privately run along similar lines to that shopping mall or a walled estate.

Ralph and Julian Assange have shown us the limitations and risks of the privately operated web. As citizens and business owners we have to understand these corporations’ objectives are not always the same as ours and make judgements on how we live with the risk of finding ourselves in breach of a Term of Service in our business or personal lives.

We’re still in relatively early days of the net and all of us are still learning. One lesson is clear though, we can’t allow our livelihoods to be held hostage by a small number of big technology companies. Make sure you have alternatives to your online channels.

*Ralph is not his real name

Why competition is great for Google

The SEO industry threatened to devalue search. Now things are changing.

We often talk about competition being good for consumers and, ultimately, businesses. The technology industry is a good case study.

Microsoft shows how competition forces a business to raise their game; when they won the browser wars by dispatching Netscape early in the Internet era, they let Internet Explorer stagnate until the Mozilla Firefox, Opera and Apple Safari web browsers came along.

Similarly, they allowed their flagship product Microsoft Office drift once they dominated the productivity software market. The arrival of Google Docs and some other new players forced them to refresh and redesign the Office package.

Today Google find themselves in the same position – Facebook, Microsoft’s Bing and various other search engines are reminding the leader that their position is not safe.

The Business Insider website recently took a critical look at Demand Media’s business model, a service that publishes low quality articles that tend to rank high with the aid of clever Search Engine Optimisation (SEO). As a result of Demand’s high rankings on Google searches these articles tend to attract advertisers.

In a search engine market where Google is the only noteworthy game in town, this situation would suit Google and Demand Media as both would have a nice predictable stream of advertising and neither party would have any great incentive to change things and for a while it appeared that might be the case.

With the arrival of real competition to Google such as Microsoft Bing and Facebook, all things change as now search engine results matter – the whole reason Google beat out competitors was because their search results were better than anyone else’s – if Google’s results aren’t as good then users will switch.

So Google’s been changing their algorithm, the formula they use for searches, in order to improve the results of queries on their system. So much so that my fellow Smartcompany blogger, Chris Thomas, accuses them of Attention Deficit Disorder.

This is good news for Google’s users who now get better quality search results and great news for Google’s advertisers who get better quality pages where potential buyers are likely to stay longer and click more.

Google though is the biggest winner as the better results they deliver, the more profitable and long lasting their core advertising business will be.

For Demand Media, things aren’t so good as there’s no shortage of poorly written tripe on the Internet and if they can’t get Google ranking goodness then their business model dies.

Which may show that in the new economy, bad soap doesn’t necessarily replace good soap.

The listening game

Our customers are talking about us, we need to listen

Last week’s Qantas A380 problem illustrates the power the Internet has and how businesses can’t ignore what’s being said on the various online channels.

Thankfully most of us will never have a morning where the world is told we have lost over four hundred of our staff and customers in a fiery accident as Qantas did last week.

While not a Qantas customer, I had a lot of sympathy and respect for their management and staff who had to deal with conflicting accounts while balancing their obligations to regulators, shareholders and, most importantly, the loved ones of those aboard QF32.

The initial story that went out on the media was a Reuters’ report that a Qantas A380 had crashed on taking off from Singapore. While Qantas were able to quickly deny that, they found their other assurances that no debris had fallen from the plane were quickly contradicted by online photos of the pieces in a nearby Indonesian town.

Luckily, Qantas’ communications teams appeared to be listening to these comments so were quickly able to verify their accuracy and amend the company’s position before they were embarrassed.

Today’s connected consumers armed with camera equipped, Internet enabled smart phones and can post images contradicting or confirming your message or understanding of the situation quickly. Which is exactly what happened in this instance with passengers and witnesses quickly uploading their views of the incident.

In one respect this is a threat to traditional management where controlling the message is everything, to the modern manager this is a fantastic opportunity to react quickly and positively to changing situations.

One of my favourite stories comes from the Virgin Blue checking problems in late September where staff, alerted by complaints on Twitter, were able to get water bottles out to thirsty passengers stuck in queues. It didn’t rescue Virgin from the PR battering they took, but it helped a few of their customers and just maybe won a few of them back.

This isn’t to say the Internet is infallible, far from it — the Internet is mankind’s gift to the ill informed ratbag and the mischevious troll — what you read on Twitter and Facebook needs to be treated with the same suspicion as what you see on Reuters and CNN.

Even when the information is downright wrong, you at least have an early warning there’s a perception problem in the community which you can quickly work upon. The key is to evaluate and recognise the credible from the silly and then be able to act on the credible while countering the silly stuff.

One big lesson from both Qantas’ problems last week and Virgin’s in September is how important it is to point all of your communications channels, including call centres to the organisation’s web site where up to date, verified information is available for the public, staff and customers.

While the net represents great challenges to business owners and managers of all organisations, it’s also a fantastic resource for getting your facts right and reacting to fast moving changes. Make sure you have the tools and the team to deal with the opportunities and threats our connected economy will throw at us.

Category: Internet

Password safety

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