[Cross-posted from my company blog.]

I just got back from a really fun (and delicious) lunch with Peter of Pantless Knights, who is in LA working on a hilarious new video, and one of the main things we discussed was the idea of Entertainment-as-a-Service. The term is a reference to the concept of Software-as-a-Service (SaaS), which is a business model generally contrasted with the conventional packaged or ‘shrinkwrap’ software model. Essentially, SaaS is a subscription business and packaged software is a retail business.

The entertainment industry is a retail business. Books, movies, tv shows, music are almost universally sold as one-off purchases. But, those things are just the packaging and the people selling them to you are just middle-men. The business of entertainment (not to be confused with the entertainment *industry*) is fundamentally a marketplace of attention between fans and content creators — fans have a finite supply of attention for which content creators are competing. So, then what is the entertainment industry? To use a very relevant analogy, it is the collection of intermediary businesses (i.e. publishers, studios, networks, labels) that have been acting like investment bankers, taking the raw materials of talent and creativity and packaging them up in a form they know how to sell (i.e. retail) and commanding a big slice of profit along the way. Entertainment doesn’t want to be a retail business, and that is the fundamental essence of the disruption the Internet has unleashed on the entertainment industry.

[Clarification: For the sake of this discussion, I'm using the term 'content creator' to represent those who add unique creative talent to the production process. As my dad pointed out, content creation is rarely a solo effort (most notably in film production, which can involve hundreds of individual contributors) to which studios, networks, labels, and publishers often contribute substantial value. But as those contributions are opaque and thus interchangeable as far as the consumer is concerned, I am excluding those who make them from the class I refer to as 'content creators' in this post. Otherwise said, even though the sound engineer plays a crucial role in creating the album, no one buys it based on *who* the sound engineer was.]

When you think about what elements of the entertainment business technology has really undermined, it’s nothing more than the packaging — the time slots and release dates and viewing windows and region codes that are artificial constructs of these middle-men trying to slice-and-dice the content into as many tranches as possible to squeeze out every last cent of profit. Just like the investment bankers and their CDOs fragmented and obscured the connections between investors and their investments, so have the studios, networks, publishers, and labels introduced complexity into the connections between content creators and their audiences. While that complexity, and the companies who created it, may have been a necessity in an era of technologically inferior marketing and distribution systems, they are simply market inefficiencies in the Internet age.

So, what is the difference between retail and subscription when it comes to entertainment? In a recent post on my personal blog about SaaS vs shrinkwrap software, I wrote:

The business model of packaged software invites feature bloat, because it’s upgrade driven and you need to continually find ways to justify why Thingamajig 2009 Pro Edition™ is so much better than Thingamajig 2008 Pro Edition™. Software as a Service businesses have a much different (and arguably greater) challenge, they need to continue to create value for their customers month after month….So, you end up with a much more customer-centric product…and a vendor who is truly interested in addressing your customer needs.

The first priority of a retail business is to maximize sales, building brand loyalty and repeat business may be means to that end but they always take a back-seat to whatever else will drive more sales. Whereas in a subscription business, customer retention (and thus customer satisfaction) is always top priority, even above new customer acquisition. So if a studio believes they can get a lot of people to see a crappy movie by spending more on marketing and less on quality, they will (and do, again, and again, and again…). Because all you’re buying from them is the packaging, they know you aren’t really paying attention to whether it’s a Fox or Warner Brothers or Paramount film (do you buy your cereal based on who made the box it comes in?). But, a director would rather disown a bad film than endorse the studio releasing something that doesn’t meet his standards and his fans’ expectations. This is because the director knows that his relationship with his fans is a subscription business, and if he disappoints them he will be unable to continue exchanging his content for their attention in the future. The studios understand this too — they don’t give Tom Cruise $25M (plus a cut of the gross) per movie because his acting skills bring $25M of quality to the screen, they do it because he has more than $25M in ticket, DVD, and merchandise sales worth of fans.

Entertainment is naturally a subscription business, and the Internet returns it to its natural state. The content creators who thrive online are those who understand this and focus on the ongoing satisfaction of their customers (see Ze Frank, Michael Buckley, Chris Leavins). The level of customer satisfaction these creators deliver is really only possible on the Internet because they can go direct-to-consumer without need of the middle-men and their packaging. These creators publish in all forms — video, photos, blogging, micro-blogging, music. They do not see themselves constrained by the legacy dividing lines of the entertainment industry, their goal is to entertain their audience by any and all means available. There is no distinction for them between primary and ancillary content, they are 360° entertainment brands. The other thing that has made these creators so successful online is their direct interaction with their customers. The best your most engaged fans can do offline is give you their personal attention (and the money that comes with it) and try to recruit others to do so as well. But online, they can interact with you and become part of the show. Empowering your customers is the surest way to make them even more engaged. As I wrote in another recent post on my personal blog:

Bringing your customers into the product development process has the dual benefits of helping you build better and more customer-centric products and making your customers your most passionate sales people (because after all, it’s their product too).

So, the Internet enables these creators to spend more time listening to their fans and creating new content they’ll enjoy while outsourcing the marketing to the community for free. This is the exact opposite of the offline retail model in which the studio takes money out of production budgets to put it into marketing campaigns. The ability to establish deeper relationships with their fans also allows online content creators to attain higher average attention per customer (ARPU) than is possible in the retail world, thereby making it easier to build more value by going deeper with a smaller audience.

To be clear, I’m not trying to say the only business model for content on the Internet is a recurring subscription fee. The ‘subscription business’ to which I’m referring is more the theoretical exchange of value between content creators and their fans, which can and will take many forms — including selling packaged goods. I’m also not saying that the online entertainment market is solely the domain of Internet-only content creators. In fact, I believe the Internet is most powerful as an entertainment marketplace when the quality and reputation of a historically offline content creator is freed of the constraints of the legacy packaged goods business model. Take for example Josh Freese, who gets extra points for using this freedom precisely to illustrate the absurdity of the conventional retail approach.

And now, I leave you with the profound product of the coming entertainment revolution:

P.S. Hat tips to Ian Rogers for the marketplace of attention thinking and Umair Haque for the marketing vs quality dichotomy.

While eating lunch today, I started to think about the growing complexity of my company‘s expenses and decided it might be a good time to start looking at accounting solutions. The fact that my research began with a tweet is indication enough that I probably don’t fit anyone’s average consumer mold. But, I think some of the insights that came out of my experience are pretty fundamental and potentially extend beyond the ‘early adopter’ echo chamber.

First, I started down the conventional route by checking out market (and marketing) leader QuickBooks. Through some quick web searching, I found a few authoritative sounding comparisons that pegged QuickBooks as the best value for basic users (we’re just at the lower bound of even needing this stuff) — with the notable exception of the Mac version, which apparently gets less product development love than the Windows one. At $180, QuickBooks wasn’t really that daunting on the financial cost front. But, I was already starting to cringe on the usability/time cost side.

What I found myself really wanting was a web app (like Mint or Wesabe) for business accounting — something with a lightweight interface for connecting and organizing data from my financial services providers all in one place. And while I was researching products that might fit this bill, I started to think about why I had this innate preference for a web app (SaaS) over shrinkwrapped software. The business model of packaged software invites feature bloat, because it’s upgrade driven and you need to continually find ways to justify why Thingamajig 2009 Pro Edition™ is so much better than Thingamajig 2008 Pro Edition™. Software as a Service businesses have a much different (and arguably greater) challenge, they need to continue to create value for their customers month after month. Sometimes that value comes in the form of new features, but it doesn’t *have* to. So, you end up with a much more customer-centric product (what customers *know* they want after using it, not what they *think* they want before buying it — as humans are notoriously bad predictors of our own happiness) and a vendor who is truly interested in addressing your customer needs. So, unless there is an element of the problem a given software product is trying to solve that inherently benefits from the advantages of the desktop (i.e. local storage, access to the file system/peripherals, superior performance), I’d rather have the SaaS version.

The other thing that was on my mind when doing this evaluation was my incredibly positive recent experience on Twitter with the CEO’s of iPlotz and Balsamiq, both of which happen to be SaaS products. I realized that it really spoiled me and there’s no way I’m ever going back to the old regime of captive audiences and passive customers. So, my new rule is “never trust a company not on Twitter.” Now, that’s a bit reductionist — and, in Intuit’s defense, they are actually on Twitter (hi Alison ). The real point is that today’s customer service equation needs to include how responsive the company is to your new product requirements and feature requests, not just how quickly they fix something when it’s broken or answer a question when you’re too lazy to read the instructions. As much as I appreciate Intuit’s presence on Twitter, I highly doubt Alison is able to change Intuit’s release schedule to get that new feature I want out to me sooner. By virtue of the packaged software business model, she is not adequately empowered to address my customer needs.

Through my research and a very handy post on my friend Leonard’s blog (thanks for the tip Carrie), I found two SaaS solutions for small business accounting: LessAccounting and Xero. They’re both about the same price ($~25/month), and Xero seems to have a slightly superior feature set (automatic syncing with your online accounts is a biggie). But, LessAccounting clearly had the edge in customer interaction. LessAccounting has a very active corporate Twitter account and both founders have personal accounts, they use Get Satisfaction and there are 4 topics on their Get Satisfaction page that have been updated in the last 24 hrs (I also checked out the activity on the Get Satisfaction accounts of both founders), and, last but not least, they have a sense of humor (be it a slightly mean one ). Xero has a very active corporate blog and they seem to be quite responsive to their customers’ comments. But as a prospective customer, I would really like to have some better ways to interact with Xero than sending them an email or leaving a comment on their blog. (Update: Phillip from Xero responded in the comments that they do in fact have a Twitter account and an in-product feedback mechanism.) Get Satisfaction and User Voice are both great names, because when you use their products as a company that’s exactly what you do: give your customers a voice and the satisfaction that it’s being heard.

When shopping for SaaS, you’re choosing a partner in innovation. So, the future direction of a product is maybe an even more important consideration than the current feature set. And while LessAccounting can surely replicate Xero’s features, can Xero replicate LessAccounting’s customer-centricity? They both offer 30 day free trials, so I’m going to try both and make a decision in a month. And who knows, at $180 for QuickBooks Pro I may decide shrinkwrapped software is the more sensible way to go this time around (but, that doesn’t mean I have to like it ).

Update: Wow! This is starting to freak me out. I write these things to capture the distillation of the things I see out on the interwebs that I like and dislike, mostly for my personal benefit in thinking about my own business. I don’t do so really anticipating to hear back from the companies about whom I’m writing, but I guess I’ll just have to get used to this whole blogging thing .

Thanks to Phillip from Xero and Allan from LessAccounting for your responses in the comments and for engaging in the conversation. Phillip corrected me that Xero does have a Twitter account, which I updated in situ above.

Cross-posted from the Snowball Factory blog

Last week, our friend (and first client) Joel Moss Levinson, aka Happyjoel, appeared in a CBS Evening News with Katie Couric segment called Cashing In on YouTube (watch it below). For Joel, this follows an appearance on the Tonight Show with Jay Leno, a profile in the New York Times, and (our personal favorite) being named an AccessHollywood.com Rising Star. As you can see in the clip below, the majority of this coverage has been driven by the novelty of Joel’s success. He’s a guy who subsists entirely by making amusing music videos for products for which he has no personal affinity — what news producer wouldn’t love this story?!

Watch CBS Videos Online

For us though, the real story isn’t the wackiness of Joel’s success but rather how he has achieved it. Of course, having the ability to come up with witty lyrics about how awesome watermelons are and the time and energy to scour the interwebs for brands looking to crowd-source their marketing are necessary, but they’re not sufficient. Michael Buckley, the other online video personality covered in the CBS News segment, told the NY Times “I was spending 40 hours a week on YouTube for over a year before I made a dime.” Like Michael, Joel does a lot more than just what you see on screen. Arguably, making the videos is the easy part (at least for someone like Joel) — the real challenge has been building and cultivating the loyal fan-base (or as Joel calls it, his “contest voting army”) that has made him such a newsworthy phenomenon.

As of this writing, Joel has:

• 257 fans on Facebook
• 1,128 members of his “Yes, Joel, I’ll vote for your newest stupid contest” Facebook Group
• 339 subscribers on YouTube
• 138 followers on Twitter
• 153 members of his Google Group/mailing list
• 344 friends on MySpace
• 35 contacts on Flickr
• and thousands of views per month on his blog

Each of these relationship channels has different strengths and weaknesses, and we have achieved a good measure of success using them in concert through best practices and a substantial time commitment. But, the system is far from perfect. In addition to the redundant work required to build and maintain relationships through all these various channels, it is very difficult to identify and de-duplicate the individuals across them, and it is basically impossible to have a cohesive view of what is going on in your fan universe.

While 800 lbs brands like Britney Spears or 50 Cent have enough clout to ask their fans to sign up for new services, the rest of us need to find effective ways to reach our potential fans where they already live online. YouTube, Facebook, Flickr, MySpace, and other popular social media services provide access to their huge existing audiences, but the relationships you build through them have to be on their terms. We’ve learned from experience in the trenches with clients like Joel and Handsome Donkey, and we’re hard at work on a solution that gives independent online media brands the best of both worlds: access to existing social media audiences with greater control over the fan relationships it generates. So, stay tuned!

Last week, my former team at Yahoo! launched Yahoo! TV Widgets to some great press coverage. This is a project that was underway before I left, and drew heavily on the work and people of the Konfabulator/Y! Widgets team. It goes all the way back to the original Konfabulator team of Arlo Rose, Perry Clarke, and Ed Voas, who first popularized the term “Widget” for consumers as “whatever you want it to be” (much to the chagrin of Marketing & PR folks and proud mothers of people who work on Widgets everywhere ). They pioneered the concepts of open developer platforms and mash-ups that are all the Web 2.0 rage today, they just did it on the desktop. By the time I joined the team nearly a year after Konfabulator was acquired by Yahoo!, they had built a thriving ecosystem (yes, it was a real ecosystem, so I can say that without being buzzword compliant) of thousands of independent developers and millions of users worldwide.

As we continued to build the team and grow both the user and developer bases, we began to learn and build things that we realized had much broader applicability than just Widgets for your desktop. With the help of our marketing all-stars, Brady Wood and the awesome Shan-Lyn Ma, we started to create best practices and tools for building and cultivating a community of independent developers around an open platform and helping connect them to users. This work resulted in the relaunch of the Yahoo! Widget Gallery (which, for the sake of that douche over at VentureBeat, pre-dated the iPhone App Store) and a number of other improvements for the desktop Widgets product. But, it also became an essential part of the launch of Yahoo! Mobile Widgets at CES, the TV Widget launch at IDF last week, and some other stuff that’s still in the works down in Sunnyvale. It was also a great opportunity for us Konfabulistas, many of whom got to work on some of these fun projects and some of whom even moved on to these new teams.

So, in addition to being happy for my friends, who have been working on the TV Widgets project these last few months since I left, I’m proud to see the work we started (finally) coming to fruition. Way to go guys (and girls)!

I’ve been a bit MIA of late, and it hasn’t just been limited to this blog — I’ve been slacking on replying to emails and other forms of electronic communications as well. To be honest, I kinda checked out the last few months since leaving Yahoo!. And it’s been great! I got in some awesome skiing in Colorado, my first trip to South America, and a couple visits to Europe, as well as a much needed chance to clear my mind and decompress a bit.

And now, I’m back. Clearing my mind was only the first step, of course. Now comes the fun part of figuring out what I want to do next. I’ve updated my resume (html, pdf), and have started exploring various opportunities. I have pretty diverse interests, so I find it hard to conjure up the ideal job description in the abstract. But, the most important things to me are finding a project about which I can be passionate and people with whom I’m excited to work. After spending nearly 4 years at a large corporation, I think I’d like to check out the start-up world a bit (the smaller, the better). But, I’m keeping a very open mind at this point. So if you come across anything cool you think might be a good fit for me, please drop me line (jonathan[at]jonathanhstrauss[dot] com). In addition, I have a couple interesting ideas of my own I’m exploring. So who knows, I might end up looking for employees instead of a job.

I’m also planning to take this time to catch up on my various backlogs that have accumulated over these past few months, including responding to emails, uploading photos to Flickr, and blogging about some of my trips. So, look forward to hearing more from me soon

The week before last, I announced my plans to leave Yahoo! to those following me on Facebook and Twitter (oh yeah, I told my team in person first ), and last Tuesday, February 12 was my last day in the office. I’ve already sent out an internal farewell email, and I really appreciate the unexpected number of very kind responses. I guess I consider this post my public farewell to Yahoo!.

First of all, thank you! Thank you from the bottom of my heart to everyone with whom I had the pleasure to work in my nearly 4 years. I met some great people at Yahoo!, and I look forward to continuing our personal and professional relationships wherever my career may take me. A special thanks to those who took a chance on me — Gerald See, Toby Coppel, Keith Nilsson, Gerry Horkan, Marco Boerries, Dan Rosensweig, Paul Brody, and Patrick Barry. At seemingly every step in my Yahoo! career, I was an unproven quantity pushing the bounds of the responsibilities that should be reasonably entrusted to someone of my age and experience. My time at Yahoo! would not have been anywhere near as challenging, educational, and exciting without you placing your faith in me, and I hope I’ve made you proud.

By far, the most challenging and fulfilling role I held at Yahoo! was the last 20 months I spent working on the Connected Life Desktop team. We built a fantastic team, that was not only exceedingly talented and hard-working but also tremendous fun. The thing I already miss the most is the daily Widgets team 1pm lunch. Regardless of what else was going on, this was a constant bright spot in my day and reminder of why I loved my job. Thanks more than I can express to Ed Voas, Bryan Mayes, Scott Derringer, Shan-lyn Ma, Brady Wood, Laurie Voss, Matt Hackett, Rob Marquardt, Ricky Romero, Marcus Harvey, Jet Lim, Matthew Lock, Michael Galloway, Ken Neville, Sam Magnuson, Sylvio Marcondes, Kevin Driscoll, Derrick Whittle, Ashit Gandhi, Joe Morrissey, Justin Whittle, John Hayes, Steve “Dallas” Dowds, and everyone else on D-1 and in Atlanta for putting up with my shit, making me look good, and just being good people. It would be my great pleasure to work with any of you again (if you’d have me ), and count me as a reference anytime.

As for why I left, I spent more time at Yahoo! than anywhere else in my life since elementary school — a full 13% of my 27 years on this earth — and I’ve been ready to move on for a little while. Recent events provided an opportunity for me to transition my responsibilities, and I took it. For right now, my plan is to take some time off to travel and do some of the things I love, like skiing (I’m actually writing this from Aspen ), that I haven’t been able to do as much the last few years. I’m also following Scoble’s (pretty sage, IMHO) advice on unemployment, which means I’ll be attending events and taking meetings on my travels. So if you have any interesting ideas on things I should check out, please drop me a line at jonathan[at]jonathanhstrauss[dot]com.

Yahoo! people, please keep in touch by connecting with me on Facebook and/or LinkedIn. For those interested, my travel schedule is below and I’ve started a photo set on Flickr to chronicle this little adventure. Best of luck, and keep in touch.

P.S. Oh, and can someone *please* get my photo off the investor relations site already?!

[Originally posted on my 360 blog]

It’s 3AM, and this is the end of a very busy day, which is nearly the end of a very busy week that has not been unlike pretty much all of the weeks that have blurred together since the start of this year. At 12:01AM PDT, our team released Yahoo! Widgets 4, my first major product launch as a PM (this one was about 7 months in the making, as opposed to this one that took about 6 weeks). I also filed my first two patent applications today. 

My deepest thanks to everyone who helped make this happen. I’m too tired right now to go through everyone and their contributions, but it really was a team effort. It seems like the early reviewers like the new product (TechCrunch, Download Squad, Mashable, and Widgets Lab) and we’re getting a lot of good feedback from the fans in the forums. You can read more about what’s in the new release on the Yahoo! Widgets blog, and you can get the product (for Windows and Mac) here. I hope you’ll give it a try and let us know what you think.

zzzzzzz

Rant Alert!

I just finished the first of my three planned white papers last night, and decided to let it percolate a bit before moving on to the next two. It is currently a six-page screed on microeconomic theory in the digital age, and I will likely post some portions of it here soon. In the meantime, I thought I would catch up on some blogosphere surfing and MyWeb bookmarking (come on Yahoo! marketing, where’s the verb for that? MyWebbing? Gong!). And after reading through a couple of posts linked to from Kareem’s highly-underrated blog, something just snapped.

I work at Yahoo!. We are the leading community on the internet both in size and breadth of tools. And, we have some brilliant people who really get community (shouts out to: Ian, Michael, Russell, Randy, Stewart, Caterina, Danah, and Cameron, among others). But we also have some people who seriously don’t get it. They see community as a means to an end, not the end in itself. They are jealous of MySpace and Facebook and whatever the next big fad will be, because of their rapid audience growth.

Audience is what matters to these people because audience is what you sell in conventional advertising [oh, wtf...I'll succumb to the 1.0/2.0 cliché – I guess it's only a cliché because it works], let’s call it advertising 1.0. As Google has taught the world, advertising 2.0 is about selling intent. In the pre-digital age, audience put through a number of filters (like content association, demographic information, etc) was used as a proxy for intent. Advertisers weren’t really happy with this approximation, because they knew it was an inefficient means of buying what they really wanted – access to consumers with a certain intent. But, that was the best that conventional media could do, so advertisers settled. As John Wanamaker said approximately a hundred years ago, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” I won’t go further into advertising 2.0 other than to say that it is coming faster and faster. What makes advertising 2.0 relevant to this particular rant is the fact that it favors monetization of communities, not just audiences.

Getting back to the people who don’t get the “it” of communities; the way you can tell these people is that they talk about “user-generated content” way too much – they treat it as some kind of panacea that will fix the problems inherent with trying to port conventional media business models to the internet. The worst of these offenders use the term so much that they have taken to saving time by abbreviating it…from this day forth, I vow to walk out of any meeting in which someone actually uses the term “UGC” in anything but an ironic context. (Ok, I probably won’t really do that if there are executives present…but, that person will be put on my moron list).

Derek Powazek puts it much more eloquently than I ever could:

Amen brother! Derek goes on to suggest the term “Authentic Media,” which I like a lot and hope gets memeified. Authentic media definitely jibes a lot more with all the web and media 2.0 theory around which people are beginning to coalesce.

Anyway, back to the rant at hand. The reason I ironically titled the post “Community ‘Products’” (yes, my over use of quotation marks is often meant to denote irony), is that I don’t believe big companies can succeed at community products. Big companies, like Yahoo!, Google, Microsoft, and even AOL, contribute most to the community value chain by building community platforms, on which the community builds its own products. Isn’t that the real underlying goal of online communities, to incite scalable self-sustaining user-behavior? If you define the product as what the end-user actually consumes, the value of any community product to a given individual user tends to be proportional to its focus on his interests. On social networking sites, like Friendster, Yahoo! 360, MySpace, Facebook, etc, what the end user consumes is a combination of content produced by the host, the community, and himself. The more that product management rests in the hands of that user, the more focused the product will be on that user’s