This post answers the question “how businesses can use social media” by listing social media’s main characteristics, highlighting user behavior, providing a methodology for evaluating how social media can benefit enterprise operations and finally describing an example of how social media can help an organization’s procurement operations.

Clearly social media tools such as Facebook, Twitter and LinkedIn are gaining incredible popularity among individuals – for example, Facebook  just confirmed 750 million registered users.  While social media applications gained traction as consumer applications (i.e., for individual users) business applications are emerging. Examples of business applications are Youtube for marketing, Facebook for branding, Twitter for customer service and Yammer and Salesforce Chatter for internal collaboration. While marketing, branding and collaboration are the most common applications of social media today, I posit that other areas such as procurement, order management, manufacturing, human resource etc. can also gain significant benefits from social media. The key to success will be using the core capabilities and behavioral aspects in a way to meet the business objectives of each operational area.

First, lets look at the main CAPABILITIES of social media:

1. Content is user-generated: content, such as comments and conversations, is created by individuals, instead of being seeded by the enterprise.
2. Anyone can contribute: as long one is a member of the network (e.g., Facebook, Twitter) one can contribute a wide variety of unstructured content such as text, pictures, video and audio.
3. Anyone can access: a member can access content for which the member has permission.
4. Sharing: members can easily share content with other members
5. Transparency: the ease of contribution, access and sharing enables an organization to make more information available
6. Security: permission for contributing and accessing content is based on permission levels.
7. Conversation and relationship: social media enables individuals to have a dialogue with an organization, leading to a closer relationship and increased trust
8. Speed: contribution, sharing and communication happen very quickly with minimal latency.
9. Integrated networks: content can be shared across networks such as from Twitter to Facebook to Youtube.

Two weeks ago Silicon Valley and by extension the tech world, was abuzz about Color – one reason, and probably the main reason, being that venture capitalists injected $41 million into a series A round into the company. Once I heard about the investment I became curious, downloaded the app and started experimenting. Then I read that the $41 million is part of the quest for “the new Facebook”. I can see why the search for the new Facebook has begun. It appears that Google is having problems, Twitter is having challenges and Facebook is highly valued – so, no time like the present to search for the next big thing. After all, this is Silicon Valley where tech innovation never stops.

While I certainly do not fully comprehend everything about the Color app, I admire the thinking outside-the-box of the founders. In some ways, Facebook is becoming predictable and boring. Maybe now is the time to “friend” someone you do not know, as long as she or he is physically near you – wow! how cool would that be?? That’s just one aspect of Color. There are other angles such as data mining – for example, how does a person behave when in a certain group? Well, just study the data gathered from that person’s interactions in that group…

These are exciting times in this age of mobile, social and cloud!

Any outside-the-box ideas that you are pondering?

I see three areas of innovation:

(1) Social: with everyone jumping on the Facebook bandwagon, there will be a way to make applications more social. How is this going to happen? I don’t know but I can guess the following

- your work will include more and easier collaboration

- traditional e-mail will disappear and be replaced by concepts such as “Like”, “Recommend” etc.

- sharing will become more common

- the boundry between employee and non-employee will disappear

(2) Mobile: this is the easy one. One will be able to do their work using just a mobile phone. So, the PC disappeared a while ago and very soon the laptop will disappear. Will it be replaced by a tablet (e.g. iPad) or a smartphone?

(3) Cloud: this is an interesting one, because I feel that we are very early in the lifycycle of cloud computing. I predict the following

- the data center as we know it will disappear

- instead you will find cloud centers!

- storage will be a hot area

- there will be a whole new category of Fedex-types of companies that “deliver anywhere” using cloud-based services

Are you ready for all this innovation? Hope you are as optimistic about these trends as I am. We will soon welcome a new class of billionaires …. you could be one of them. How exciting!

Traditionally, a salesperson was needed for the following purposes:

- provide product information
- demonstrate product capabilities
- price offerings
- negotiate agreements

Technologies such as the internet, web 2.o and social media have changed the dynamics of software sales. Today customers can research product information using tools such as search and social media. In addition customers can “try-before-buy” by signing up for free trial accounts. Several companies list their pricing on the internet. Vendors that facilitate transparency increase their credibility and reputation.

The benefits to prospects are many, such as:

- increased transparency (e.g., finding information about a vendor by researching tweets, LinkedIn updates etc.)

- pricing clarity (e.g., learn how product is priced by studying online listing of prices)

- increased product knowledge (e.g., online trials, online resources)

Vendors also benefit:

- reduce cost of sales (e.g., instead of salesreps answering questions, have the prospect get answers from multiple online resources)

- improve credibility (e.g., increased transparency leads in increased trust)

With all the innovation in technologies, it is surprising that vendors have not leveraged these technologies to improve the sales process. If customers have started to embrace web 2.0 social media, smartphones etc., shouldn’t you as well ?

It’s almost the beginning of 2011 and I am very excited about 2011. At 30 minutes past midnight on January 1 I will head to Miami for a mini-vacation – I will be staying at the luxurious Eden Roc Renaissance Miami for 3 nights and on January 3rd I will watch Stanford and Andrew Luck play in the Orange Bowl. I feel very thankful for a great 2010 and now I am getting ready for a fantastic 2011.  I have a plan to make 2011 fantastic from a career perspective, as I am a firm believer in the saying “if you fail to plan then you plan to fail”.

For 2011 I have one major theme – build a moat around me. A moat?

Moat

Here’s what I mean – I am going to focus on my strengths, get better at what I do and learn a few new skills. My skills represent my moat – to use a sports analogy, the skills represent both my defense as well as offense! To learn more about the moat analogy read this summary of an interview of Warren Buffet and Jay Z

To be specific here are my career-related resolutions for 2011:

- became a better salesperson (i.e., improve the key capabilities: prospecting, qualification, positioning, negotiation and closing)

- learn a key technical skill: mobile programming

These are the skills that I plan to improve and develop in order to widen the moat around me.

How do you plan to build and widen the moat around you?

Here is some data on the what various publicly traded software-as-a-service (SAAS) companies spend on sales and marketing as a percentage of total revenue (source: 10-K reports at www.sec.gov) :

Salesforce.com 47 % ($605 million out of 2009 revenue of $1.3 billion)
Netsuite 46% ($76 million out of 2009 revenue of $166 million)
Successfactors 52% ($80 million out of 2009 revenue of $153 million)

As you can see each of these companies spends over 45% of its annual revenue on sales and marketing. If you are an entrepreneur you should budget at least that much for sales and marketing (perhaps  more on marketing in the beginning so that you can build awareness).

Experts cite many credible reasons for the success of one tech company over another. One reason is the concept of network effects and increasing returns to scale – for example, a platform that enables others to build applications for it (e.g., Microsoft Windows, Apple’s iPhone App Store) – the greater the number of apps, the greater the value of the platform.  Yet another reason for the success of a tech company, especially an enteprise software company, is effective sales and marketing. As I said in the beginning of this writeup, you cannot win with just a great product.

Today’s panel included the following VCs:

Howard Hartenbaum – August Capital
Josh Kopelman – First Round Capital
Mike Maples – Maples Investments
Dave Strohm – Greylock

Ravi Belani from Draper Fisher Jurvetson moderated a great session, most of which had a “hot seat” format – a few lucky attendees got to ask the panel for advice on actual VC-related scenarios.

Here are some of the nuggets from each panelist:

1. Howard Hartenbaum – August Capital

- VC as partner: A relationsip with a VC is like a marriage – you will be spending a lot of time with your VCs and so get to know them well.

- Beat the big : VCs like ideas that involve beating big traditional companies.

2. Josh Kopelman – First Round Capital

- Don’t cross the stream together: He used an analogy from a film (Ghostbusters? ) and basically meant that during fund-raising do not tell a VC which other VCs you are talking to .. or you will get the worst possible term sheet.

- Lower start-up costs/time: it takes less money to start a company and less time to test it out – both are great (e.g., $600K and 6 months now versus $6 million/6 years before).

3. Mike Maples – Maples Investments

- Thunder lizards: VCs invest in companies that can take advantage of “disruptive tectonic” forces in the market and become huge – like thunder lizards (Mike’s movie choice = “Godzilla”)

- Project Big: When you pitch a VC tell them how big an impact your product/service will have. For example, at Motive their opening slide said “we will cut data entry costs by $25 billion!”

4. Dave Strohm – Greylock

- Alignment: VCs and entrepreneurs’ goals should be aligned and investing in common stock (without liquidation preferences etc.) is one way to align interests. He said that unfortunately most deals do not involve common stock.

- Where are the women? : He asked why there weren’t more women in the VC business. Also, when Mike referred to an entrepreneur as “he”, Dave quietly admonished him and urged him to say “he or she” … But, to Mike’s credit his firm’s other partner is a woman and she sourced their best deal yet – so kudos to Mike.

Here are some of my own insights:

Grey Matter: These VCs seem soooo smart – have you checked out Ravi Belani’s profile?

Grey Hair: My own hair is greying  but I couldn’t believe how many in the crowd had more grey hair than me! My guess is that some of the grey haired folks (except for me) were angel investors. With lower capital requirements for starting tech companies (because of cloud computing, open source etc.) I think the number of VC firms is going to decline, meaning that if you want to start a company angel investors are going to be your best (and perhaps only) shot at funding.

Silicon Valley Special: The valley is truly a special place for tech innovation, especially for businesses focused on intellectual property . I doubt if any other place can compete.

My final thought: Tech is just one avenue of entrepreneurship. There are several other sectors where you can create disruptive change – health food, sports, healthcare, travel, housing …… are just a few that I can think of …

What do you think? Do you agree with the VCs or with me?

With so much going on in the glamorous worlds of mobile, social networks, music etc., why would one pick something as boring, mundane, prosaic ( fill in your favorite synonym for “boring” here) _______ as data ??? For me it’s because I’m a numbers guy, I like the worlds of planning, forecasting etc. and it appears that data analysis is emerging as an area of growth – for me data mining is at the intersection of my skills, likes and where the market is going.

What is data mining? My informal definition is that data mining is the process of getting some benefit, whether economic or non-economic, from information. A simple example, courtesy of Roger Magoulus from OReilly Media,  is Amazon.com’s listing of each book’s “Amazon.com Sales Rank” – that single piece of data helps buyers make decisions.

Everyone is aware of the tremendous growth of social networks. Anyone who uses LinkedIn has probably noticed the “People You May Know” box – that’s a case of LinkedIn using information on connections between your contacts and the contacts’ contacts  – another example of data mining. If you do a search for “data mining” on a job site like Simply Hired, you may find social networking companies like Yelp and Facebook advertising for data mining experts. Today I noticed that Simple Hired itself has added a neat capability – it can show your Linkedin contacts next to a job listing – the value being that you can ask your LinkedIn contact to possibly to give you a referral – another example of using data for your benefit.

What about those “other” companies?  Can a “normal” company, not just a social networking site, also mine online data? Sure. Take a look at this chart that shows trends for Google searches for rental car companies:

Trends in Google Searches

In this case each rental car company can investigate why there were relatively more searches for Enterprise Rental Car – was it because Enterprise advertised more in a specific location? This is an example of data mining of external information (i.e., information that does not reside within the corporate technology systems). You can view the actual chart here, and even drill into specific locations (for example, there were more searches for Dollar Rental Car in Hawaii).

Hal Varian, an economist who works for Google, recently said that statistics may be a good career choice in the future: “… The ability to take data—to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it—that’s going to be a hugely important skill..”

I hope these examples gave you a better understanding of data mining as it pertains to online data. What do you think?

I attended the VLAB event “Data Exhaust Alchemy: Turning the Web’s Waste Into Solid Gold” at Stanford GSB today. It was great – Bishop Auditorium was packed. Here’s a very brief summary of what I learned from each speaker:

1. Roger Magoulas, Director of Market Research, O’Reilly Media: He related the story of how Amazon.com, by simply adding the popularity ranking of books, was able to add a lot of value for customers – a great example of using the data exhaust.

2. JB (Mike John-Baptiste), CEO, PeerSet: Peerset has developed algorithms that mine web data to help advertisers target the right audience.

3. Mark Breier, General Partner, In-Q-Tel: The venture arm of the CIA has invested in the following companies: Visible Technologies, Palantir and Fortius One. There are many security-related applications of the data exhaust.

4. Jeff Hammerbacher, Vice President of Products and Chief Scientist, Cloudera: He left Facebook because he felt that he did not understand consumer technologies such as online advertising. Cloudera makes the open source version of Hadoop, which uses the Mapreduce algorithm developed by Google.

5. Dr. DJ Patil, Chief Scientist and Sr. Director of Product, LinkedIn: He preferred the word “ecosystem”  (over the phrase “data exhaust”) to describe the data created on the web. He mentioned that with every passing day there are fewer people who are not on Linkedin.

6. Pablos Holman, Futurist, Inventor, Security Expert, and Notorious Hacker: He was AWESOME. He stressed that, from a security perspective, everything that we do online and using mobile devices is in the cloud. He showed a cool demo of how our credit cards are NOT that secure.

My overall opinion is that the speakers and their respective organizations were working on some very difficult and exciting problems related to the growing volume of data. A point that Richard made was that mining the social graph (e.g., our Facebook friends and the things we do, like etc. as recorded on Facebook) is very challenging. The good news is that companies like LinkedIn have been able to extract value from its data, and added cool capabilities such as recommending people we can connect to.

Bottom line:  did the meeting give me any ideas for products or services that I can sell to my enterprise customers? ….. Yes.

I”m increasingly being convinced that the next big tech opportunity lies in being able to do something with the data deluge. A recent column in Gigaom mentions that Facebook’s greatest asset is it’s social graph (i.e., the connections between people and their friends, pokes, pictures etc.). Facebook is working very hard at extracting value from this data. Similarly, Yelp is trying to mine its own user-generated restaurant reviews.

The key to solving this data-mining challenge is to engage in “non-linear thinking.” It’s important to keep in mind that there is more to data mining than the IT-focused steps such as data collection, aggregration, modeling, validation etc.  One of the most difficult parts of data mining social media information is that the data is mostly unstructured (i.e., text, pictures etc.).

I’m really excited about the data challenges – this is the age of big data – for more on big data read this .

What do you think? Do you see an opportunity in the data deluge?