Status

I ran across Chuck Blakeman's "Why Small Business is Fed Up with Government" at an apt time, as I am helping my wife with her state B&O taxes for her small business. IMS reports quarterly and has a rather less complicated business model; my wife sells quite a bit of electronic stuff online in addition to her local activities, and this throws the tax form preparation process into a bit of a tar pit, particularly with the 2004 Washington state decision to treat electronic media as "tangible personal property" for tax purposes.

The state's concern is real; as more and more media becomes electronic and shifts away from physical goods such as books and DVDs, a considerable portion of the major tax base here, which is derived from a state sales tax, is at risk. Particularly with retail giant Amazon based in Seattle, the state stood to lose a significant chunk of the tax base it relies on to serve infrastructure and other local service needs.

The approach they decided to take is less laudable. Rather than sitting down and looking at the implications and reality of the shift toward electronic goods, they simply made a few punctuation changes in their definition of tangible property, making a mockery of the term, and throwing the whole process of tax preparation for the small electronic media business into disarray. It sounds like an easy change to make, but many of the assumptions which hold true for physical goods don't hold up for electronic goods, and make the laws governing the process utterly assinine and impossible to follow sensibly.

So I saw a commercial on TV the other day for a high speed wireless Internet service covering the Puget Sound region. They called themselves "Clear" and I thought, "Wow, Clearwire is going to have a conniption, that's the same thing they do!"

Then, of course, the penny dropped.

I suppose it finally occurred to someone over there that the "wire" in the name brought up exactly the wrong connotation for a wireless service. So now they are just "Clear" although their terms and service plans are anything but (prominent on the front page of the Clear website is their bold offer "$30 a month 4G wireless service" while in the fine print you see it's only $30 for the first six months of a mandatory two year term, with hefty fees for early termination). So, same-old, same-old. I remain unimpressed, and it appears the rest of their market does as well. With high-speed wireless adoption coming now more from the bottom up, through cell-phones and their carriers, Clear may have missed the boat, "4G" service or not.

It's long been possible to use various Google products, Gmail particularly, with their copious amounts of free storage space, as free online hard drive space with the use of third party utilities (primarily the Gmail Drive Shell Extension).

It's also long been speculated that Google would introduce a formal service designed to provide this functionality, popularly nicknamed "GDrive" (in the same way that the long-rumored cell phone offering, recently revealed as the "Nexus1" was called the "Google Phone" in speculation so often that many people are simply calling the Nexus1 the "Google Phone") in competition with various other providers of free online drive space that have popped up in recent years. The much-discussed GDrive service has not emerged as such, but in a backward (but potentially even more useful) sort of way, Google has finally provided such as service as part of its online document and spreadsheet offering, Google Docs.

Now, any Google Docs account can hold not just the various types of Google documents, but also any file that users choose to upload. The files are limited to 250MB in size, and count against the global Docs storage limit (currently 1GB, although Google is known to play around with those numbers as its internal capacity grows, and you can purchase more a la carte), but apart from that, you can now upload, and share, any sort of files you like.

It's not GDrive, but it may be better. By incorporating this functionality into Docs, it's putting it in the place where most serious Google business users spend the greater part of their time anyway, and it incorporates a sharing mechanism and paradigm that is already broadly used.

Phil Wainewright writes today on why the freemium model is bad for business. Phil's blog tracks Software as a Service so as you can imagine he sees quite a few vendors for whom freemium is an integral part of their model. The term, in case you aren't familiar with it, describes the process of structuring offerings with services that are primarily free, but which offer extra features or upgraded levels of service for customers who choose to pay for them.

This is a risky approach for vendors, requiring a fine sense of what is and is not of value in one's product line, but it has proven popular in the market and can be a means of honing in on exactly the thing that users are willing to pay for. Presenting an exact value proposition represents an extremely accurate way to establish pricing and focus in on the parts of customer service that really matter.

Wainewright makes his arguments from the customer perspective, though, generally focusing on the truism that there is no such thing as a free lunch. If you aren't willing to pay for service, he argues, how can you expect it? He points out the poor track record of success for freemium services over the past decade, and questions why you would want to rely on them in the future.

Wainewright's charges are all true, of course, but they over-simplify the decision-making process you should use when selecting any service for your business that you will rely upon. The key isn't whether or not you pay; any small business owner who has been around more than a year or so can tell stories about getting burned by vendors to whom they have paid very good money. Similarly, most will have stories of free services they use which have been solid and indispensable, be they ever so simple.

The real key isn't to focus on whether or not you are paying, but on where the vendor is getting paid. That is the secret to determining their motivation, and knowing their motivation is essential to establishing an alignment of your interests with theirs.

Classically, businesses make money by providing good, well-priced services to customers who feel they get their money's worth and will return for more and make referrals. There's nothing wrong with that model and it still works pretty well in many situations. But it's not the only working model out there. There are businesses that make money today by over-pricing and providing shoddy utter crap, and there are those that make money by giving things away and providing excellent products.

The reasons behind this are all about where the next dollar is coming from. The company that has no reason, even if it provides excellent service, to expect that you will ever send them another dime or refer anyone to them, probably isn't going to focus on making you happy. They want to cash your check and move on; their margins come from finding the next sucker.

A freemium-driven business, on the other hand, frequently has every incentive to provide good service... once they get you in, even as a free customer, you represent that next dollar because it comes from upselling the next level of service to you. The free was to get you in the door. The real sale doesn't happen until the company converts you somehow. While it's true that a lot of freemium-based companies have failed, so have plenty that decided they should charge up-front.

There is also the possibility that the freemium vendor is getting what they want simply by your presence; Google is a good example of this: they make their money from advertising. Your eyeballs are a necessary part of that, but your wallet isn't. They have every incentive to keep you coming back to their services and viewing their ads, even if you never give them a dime.

Don't mistake anecdotal examples of poor planning or execution for a problem with the model itself. The right things to look at are whether or not the vendor is capable of providing the service you want, and whether or not they can make money at it... whether the money is coming out of your pocket or not.

We usually define our market as the small-to-medium business (SMB) and this blog is mostly read by people at companies that put themselves in that category, but what, exactly, does that mean? What's the purpose of putting a business into such a category, and how does anyone decide what is, and isn't, an SMB?

Spurred by a post on the SMB Research Blog on the topic, a brisk discussion of the topic from the Information Technology perspective broke out on a LinkedIn group I follow this week.

What's the fuss, you wonder? Who cares what an SMB is or isn't? Everyone uses Windows, whether they're General Electric or Bob's Corner Market.

That much may be true but there are a lot of solutions out on the market that are specifically oriented, or at least claim to be, toward businesses of a certain size. It becomes difficult to evaluate these if you aren't using the same yardstick as the manufacturer, or if your assumptions about what an SMB is or isn't don't line up.

It developed from the LinkedIn discussion that most people in IT base their definition off either the total headcount of the organization or the number of PCs the company has. Some go by revenue, and some use governmental definitions (noted in the SMB Research post linked above).

Our take is that all of these approaches are misguided. Particularly today, with IT providing immense leverage in an increasing number of markets, the headcount, revenue, or number of computers a company has provides little insight into its IT requirements.

We prefer to look at the level of information processing the firm performs for guidance toward the level of solution they might look at to handle automation of those tasks. The technology itself can affect both revenue and headcount, increasing the one while decreasing the other and throwing off those traditional metrics anyway. As far as the number of PCs, the power of modern machines can drastically reduce those numbers as well, even as processing capabilities increase. In short, the level of sophistication a business might successfully make use of has little to do with any of those metrics. What ultimately matters is process complexity and the level of potential those processes have for being addressed by technology automation.

Anyone who tries to lump you into a product range or category based on anything else, tell them to take a hike.