EDIT: There have been comments informing me that Dropbox keeps a local copy of files on a users desktop (generally speaking), thus making some of my Dropbox examples less relevant. While true, the purpose of this post is around the legal precedent being set vs. a specific fear for a specific provider. As you read, feel free to think of whichever provider you wish interchangeably with Dropbox.

I’m the first to agree that any website obviously engaged in piracy (vs. having independent users leverage the platform in unintended ways) should be shut down, and if this is the case with Megaupload, it should be shut down.

However, the way Megaupload was shut down raises scary implications. With cloud based storage becoming primary for many, it is rather jarring to have people losing legitimate files in the process, with no recourse to immediately find or recover them. I store a lot of personal files in Dropbox, and if they ever got megauploaded (I’m sure there is unintended piracy at Dropbox) I’d likely lose my copies. One has to wonder how many users have less faith in these next-generation systems as a result. We also need to consider that the average user is likely unable to determine what a websites primary use is outside of their personal use case (would your Father know MegaUpload was mostly piracy, or would he think it is a site to share and store files?).

The conclusions here alone are scary:

1. If a website has significant piracy, it will be shut down at the expense of legitimate users;
2. Legitimate users may be unaware of the piracy while using a legitimate service;
3. Users have no recourse to immediately recover legitimate files; and
4. Legitimate users may thus be less likely to use cloud services / cloud storage.

If a site must be shut down we, at the very least, need a mechanism for users to immediately recover legitimate files.

Nothing above sounds attractive (at all!) to our industry. I wanted to dig further into the indictment based on the information I could find, and am concerned that a cornerstone of the argument rests on the way infringing files are deleted.

The Digital Millenium Copyright Act provides safe harbor for sites which take down illegal content within a reasonable period of time, of which they had no prior knowledge of. Broadly speaking, it’s a concession whereby a sites users upload illegal content against the sites wishes, and is why companies such as Youtube don’t get shut down.

The Megaupload indictment reads that they removed links to the illegal file, but did not remove the actual file. To those blissfully unaware of how the file systems / internet cloud storage works, this makes sense. But, let’s consider how an average file sharing service works:

User A comes along and uploads a file (say, the film Big Fish.) User B, whom has no relationship to User A, uploads the same file. Instead of store the same file twice, most services will recognize the file is the same and give both users a ‘link’ to the same file. If User A deletes the file from their service, they are merely deleting their ‘link’ to the file, so as not to affect User B.  Only when no users have a ‘link’ to the file will it be purged from servers (and in some cases, if a file is routinely popular, it may remained on the servers to account for future uploads).

When receiving complaints, Megaupload removed the ‘link’ to a file, with the assumption that other uploaders’ of the file were legitimate. If you still think that this move is directly supportive of piracy, consider the user who saves backups of digital purchases they have made / old digital content (legal in some jurisdictions). Removing a link, vs. the actual file, is clearly the fairest solution so as to not harm legitimate users.

If the precent is set that the physical file must be deleted where one of many users with ‘links’ engages in illegal activity, things will become very scary. All of a sudden, I can’t trust any file storage, saving or backup mechanism where I don’t hold the physical hard drive. Most less informed users won’t realize this until they get burned. If things are not handled carefully, there is a very real chance this will become precedent.

So far, I’m scared. Hopefully like SOPA, people will understand that a movement with potentially good intentions has been warped, twisted or simply has very unintended ramifications. If you read through further information the case, there are several other key complaints:

1. In practice, the “vast majority” of users do not have any significant long term private storage capability. Continued storage is dependent upon regular downloads of the file occurring. Files not downloaded are rapidly removed in most cases, whereas popular downloaded files are retained. (items 7 – 8)
2. Because a small proportion of users pay for storage, the business is dependent upon advertising. Adverts are primarily viewed when files are downloaded and the business model is therefore not based upon storage but upon maximising downloads. (items 7 – 8)
3. Persons indicted have “instructed individual users how to locate links to infringing content on the Mega Sites … [and] … have also shared with each other comments from Mega Site users demonstrating that they have used or are attempting to use the Mega Sites to get infringing copies of copyrighted content.” (item 13)
4. Persons indicted, unlike the public, are not reliant upon links to stored files, but can search the internal database directly. It is claimed they have “searched the internal database for their associates and themselves so that they may directly access copyright-infringing content”. (item 14)
5. A comprehensive takedown method is in use to identify child pornography, but not deployed to remove infringing content. (item 24)
6. Infringing users did not have their accounts terminated, and the defendants “made no significant effort to identify users who were using the Mega Sites or services to infringe copyrights, to prevent the uploading of infringing copies of copyrighted materials, or to identify infringing copies of copyrighted works” (item 55–56)
7. An incentivising program was adopted encouraging the upload of “popular” files in return for payments to successful uploaders. (item 69e et al)
8. Defendants explicitly discussed evasion and infringement issues, including an attempt to copy and upload the entire content of YouTube. (items 69i-l. Youtube: items 69 i,j,l,s)

In the most polite words I can muster, this shit is scary! Let’s address some of these points directly:

In practice, the “vast majority” of users do not have any significant long term private storage capability. Continued storage is dependent upon regular downloads of the file occurring. Files not downloaded are rapidly removed in most cases, whereas popular downloaded files are retained. (items 7 – 8)

If this is not a usual online file storage business, I’m scared already. There exist several models / types of file storage businesses, some of which are based around short-term sharing. Naturally, a short term file sharing business terminates files no longer active after x period of time. This does not directly mean piracy. I frequently use similar services to share presentations and other large files that hit e-mail limits.

Because a small proportion of users pay for storage, the business is dependent upon advertising. Adverts are primarily viewed when files are downloaded and the business model is therefore not based upon storage but upon maximising downloads. (items 7 – 8)

I don’t pay for Dropbox either (albeit they are not ad-based, and I intend on upgrading at one point). Free + Ads is not an uncommon model. If I’m serving file downloads, my only option is when a user attempts to download a file. This is not a high retention service.

Persons indicted have “instructed individual users how to locate links to infringing content on the Mega Sites … [and] … have also shared with each other comments from Mega Site users demonstrating that they have used or are attempting to use the Mega Sites to get infringing copies of copyrighted content.” (item 13)

I question whether this should be against the individuals, or the organization itself. While individuals are tied to the organization, data warehouses / file storage raise many key implications.

Infringing users did not have their accounts terminated, and the defendants “made no significant effort to identify users who were using the Mega Sites or services to infringe copyrights, to prevent the uploading of infringing copies of copyrighted materials, or to identify infringing copies of copyrighted works” (item 55–56)

The word “significant” is what scares me here. It is grey. If “significant” was well defined, it becomes a different story.

An incentivising program was adopted encouraging the upload of “popular” files in return for payments to successful uploaders. (item 69e et al)

Indicative of a freemium model. I get incented on many websites for sharing popular content. Fair enough, the popular files may have been pirated content (and thus removed), but this is not an issue with the model, per se.

———-

As one reads further and further I find that the complaints could be made against clearly legitimate file storage services, i.e. Dropbox. One cannot deny that Megaupload was used for piracy, and if this was directly encouraged and profiteered by the organization they should be shut down. I have no qualms on this.

Where I get scared is the process and submitted evidence being leveraged for this shut down. If this becomes precent, we are in for a wild and scary ride, right under the nose of slowing down the SOPA march. This feels like a web of vaguely defined concepts. Based on prior movements by those in power, I’m certainly not comforted by their capacity to understand the issue. The challenge is that on the surface, the shut down makes sense (we found pirated files, and they didn’t delete them.)

We still have a lot of educating left to do…

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The mice that power the great wheel known as the internet have been running hard today. Plenty of big news, such as the Wall Street Journal launching a Wikileaks killer, called ‘Safehouse’.

The WSJ claim that all entries will be reviewed by an Editor, who will decide the correct course of action. It’s only been a matter of time until somebody tries to capitalize on the Wikileaks success, and the WSJ make sense: they have a huge journalistic reach, and the ability shed light on issues where others may not.

But, friends, let’s take the WSJ as an example of how to NOT write a terms of service. A T.O.S. should understand your users, their motivation, and ensure that you are protected without alienating users. When we read the T.O.S. for Safehouse:

“”we reserve the right to disclose any information about you to law enforcement authorities or to a requesting third party, without notice, in order to comply with any applicable laws and/or requests under legal process, to operate our systems properly, to protect the property or rights of Dow Jones or any affiliated companies, and to safeguard the interests of others”

I don’t claim to be a genius (well, today at least) but something tells me this is not an attractive proposition to whistleblowers. Whether you consider whistleblowing ethical or not, clearly the WSJ have stumbled. If they have not alienated their potential user base already with this move, it will only take one execution of this rule to erode any trust they build.

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It’s been a while now, but I spoke at the MaRS Best Practices series with Erin Bury (Sprouter), Mark Evans (MESH) and Joseph Puopolo (StickerYou). Our topic was “How to promote your B2C Web Startup”.

I was going to write an earth shattering entry summarizing the key tips, but much time has passed and most of the lively discussion is hiding in the deep chasms of my fragile mind. That being said, as you watch I’d love some comments, e-mails and tweets on the key tips: I’ll be sure to add them into this post (yes, I’m trying to crowdsource a blog entry).

So, without further ado, here is the video. It is definitely worth a watch.

MaRS Best Practices – Lights, Camera, Action! How to promote your B2C web app start-up from MaRS Discovery District on Vimeo.

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Recently, Doug Stephens of Retail Prophet attended a video panel I moderated for IT World. The video was for a Tech Learning Space course I am collaborating on the design and delivery for.

We started talking social, specifically deep social metrics and measurement.  On the topic of metrics, Doug made the distinction between monitoring and measuring; a distinction that, sadly, too few make.

Measurement

Is what we traditionally think of in metrics. We actively install systems to track these numbers. We plot them. We aim to improve these core metrics. The metrics we measure are the metrics management, founders and you should care about.

In the context of websites, it is common to measure unique visitors and time on site.

In the context of social, it is common to measure follower counts (which is the wrong play – but that’s a different entry) and message amplification.

But….

We can only measure so much. Increasing every metric is tough, and the more metrics we have the harder it becomes. In-fact, you will often be advised to focus on the select few metrics over the many.

Why? It ensures you know your numbers in depth, not on the surface. It also forces you to make key strategic decisions in driving your core business forward.

Enter, Monitoring

I’m a firm believer in the select few metrics philosophy. The problem is that too many people take it literally and only watch their select few metrics.

There are plenty of other great indicators that we should monitor, metrics we check frequently (but far less than our measured metrics) for spikes and changes but are not actively seeking. By monitoring these messages, we won’t miss out on any big opportunities due to a narrow lens.

For example, in web analytics we may monitor our referrers (where traffic comes from) and a regional analysis (the country of your visitors) for any spikes or big changes. For a content company, however, these would be ‘to measure’.

Monitoring is also where I place the ‘fluffy’ stuff that is subjective, i.e. sentiment analysis (how people feel about your brand) in social. We can’t attach a number, bt it should be monitor.

Wrapping Up

Obviously, not every metric should be measured or monitored. But to keep on top of your company’s analytics be sure to have a strong ‘to monitor’ list as well as your core ‘to measure’ list.

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A few months ago I was involved in a discussion on Hacker News about how startups can save money. Collectively some great tips were shared that benefit startups, small businesses and freelancers.

As somebody within this descriptor you are constant hitting cash-flow challenges. Money is not easy to come by, and is even harder to keep. Working with smaller companies from time to time I’m seeing burn rates (the amount of cash you spend) far higher than they should be. Below is a nicely curated lists of do’s and don’ts when it comes to being cheap and saving money. Much credit belongs to the Hacker News community for generating this list.

Do:

• Always ask for a deal.
• Use Skype, an unlimited cell provider or another VOIP provider to reduce phone bills.
• Live somewhere with a suitable home office; don’t expand too fast.
If you have investors, shackle down in their offices.
As soon as you need an office location, use a co-working facility.
Once you expand to a real office, ask the tenants if they can leave any furniture behind.
• Try the free versions of everything. Only upgrade if it was useful and ask for a deal.
• Barter time over money (i.e. speak at a conference for sponsorship, write blogs for services).
• Take public transport over a taxi. You can work from the train (assuming the travel time is similar).
• Walk if possible. It saves money, clears your head and saves gym trips.
• Brew your own coffee in house. Starbucks is not cheap.
• Pick one coffee shop and restaurant for client meetings. Ask the owner for a ‘regular rate’ for taking all of your customers out.
• Use an accounting tool i.e. Freshbooks to manage your Invoicing. Don’t spend time on tedious, repetitive tasks that technology can manage free of charge.
• Use an internal tool such as Yammer or add co-workers to Skype. Get in the habit of communicating here to save on e-mail overload later.
• Until you reach profitability your time has little monetary value. Think twice about time saving apps.
• Just…..don’t spend it. No matter how much money is in the bank pretend you have none.

Don’t:

• Run your own server (web companies excluded) or mail server. It is cheaper to outsource and you won’t have as many headaches.
• Outsource your core competency. This also means your public facing image.
• Drink Starbucks. If you need caffeine, make it yourself.
• Take any money you can. As counter intuitive as it sounds, be laser focused on what you do.
• Optimize expenses below $100. No matter how poor your company it is probably not worth your time.
• Use an agency of any kind. Find a freelancer.
• Create too much conference loot. If you must, pick one item and create it in bulk.
• Buy new technology just because. If clients do not really expect the newest and greatest (be honest with yourself here) you don’t need it. 99% of what you do is probably e-mailing and word processing anyway.
• Buy a Smartphone if you are usually in the office. Even cheaper Nokia’s have e-mail.
• Pirate software. This makes you a bad person.

Where do you fit in?

Saving money is not always easy. I apply many of these philosophies in my personal life and, while not always fun, the end of day cashflow makes it worthwhile.

How many of these were you already applying? Do you have any that I missed? Tell me in the comments section below.

Note to Small Businesses in Toronto: Enterprise Toronto will be holding their annual Small Business forum this Tuesday, October 19th with over 1,500 attendees already registered. With a digital media zone, DemoCamp, ignite series and awesome speakers (myself included) this will be one not to be missed. Click here to register.

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Sit down, relax, and ask yourself: “Who does my business compete against?”

I’ve asked this question to exclusive car hire agencies, consultancy practices, small business owners, restauranteers and more. If you are anything like these people, your answer is probably among these responses: “We have no competition,” “We are unique,” or “Nobody does what we do.”.

You’re wrong and you may be killing your own business for thinking this way!

I believe the problem is that most business owners and professionals connote competition with “direct competition.” You need to look at competition in a far more basic way and ask yourself, “If I don’t earn $1 from a customer, who gets that $1?”.

Illustrating this by examples is easiest: Assume you are the only bakery in a small town. The closest independent baker is a 20-minute drive away. It sounds reasonable to claim a lack of competition, but you would still be wrong.

Clearly, the first point of competition would be the local supermarket which also sells bread. You are both competing for the same customer. But you are probably smart enough to have picked that one so let’s go a little deeper and assume you are the only store who sells bread within a 20-minute radius. Who, then, are your competitors?

We need to answer Who, When, Where, Why and How:
WHO is using our product?
WHEN are they using it?
WHERE are they using it?
WHY are they using it?
HOW are they using it?

Answering for the bakery, I buy bread to make sandwiches at home for lunch (Who: Me, When: Lunchtime, Where: At Home, Why: I need to eat, How: Using to make a sandwich). What other products might I consume instead of a sandwich? Salad. Pies. The list goes on. On the contrary, if I packed sandwiches for work our baker may be competing with a local restaurant.

Think a little bit on what alternatives are available. They are your competition too. And it’s that simple. Hopefully, you are able to sit down and figure out the answer to the question “Who are my competitors?”

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I like referral programs and I love freebies. They are great ways to gather some customers at low cost and generate buzz. A friend, Sohail Somani, was questioning me late last night (one of those late night entrepreneurial fire chats) on referrer / affiliate programs which got me thinking. The problem with most referral programs, especially with non-digital companies, is that they are not ranked against traditional marketing metrics.

Why don’t people provide give-aways to Tweeters?

I think there are a few reasons. As a marketer, if I know you are willing to pay me money for something then I’m going to take your money. The role of a company, primarily, is to maximize profits.

Secondly, Twitter is still niche; although one can argue it is getting more and more mainstream. It is a dangerous precedent to give something away now, only to have the community expand and expect freebies. If not done well it can destroy the mental value of your product. See my post on decision anchoring. Customers unwilling to pay are not always worth keeping.

Finally, there is an implicit, gross cost to giving something away (gross profit is the money you earn, minus the cost of making and providing the profit). Let’s assume the normal retail price of my widget is $50 and my gross profit is $25, meaning a gross expense of $25. That means each time I give something away you need to refer at least one customer for me to break even and three for a profit. Sounds like a lot more work, doesn’t it? Also keep in mind that gross profit margins in many industries struggle to hit 50% so each freebie needs to bring in a multiple of customers.

What I’m not taking into account here is viral buzz but be realistic. Launching a vanilla ‘take a freebie’ will not get you buzz. If you be creative, that’s a different story.

What about paid referrals?

Referrals I do support, but people rarely put solid thought into how to price or structure their referral scheme. When judging referrals I need to take into account net profits over gross profits.

The first thing to do is figure out our acquisition (marketing) cost per customer; in other words, how much does it cost me to get their money?. Let’s assume that $8 of the above $50 is a marketing expense and that every time I spend $8 I find a new customer (the model is repeatable). In the real world I’d have a specific acquisition costs for each channel. That means paying over $8 per customer is not feasible while I still have replicable, working marketing models elsewhere.

In my experience, because of propagation, referral customers can also have higher than average attrition rates. So, perhaps we should  be giving $6 per customer, not $8, to be safe. $6 makes sense, I am lowering my cost of acquisition so some cannibalization is okay (though, we don’t want to cannibalize so much that higher volume channels are now ineffective).

We also need to remember that referral sales can cannibalize other channels, if I had 100 referral sales it would be safe to assume at least 30 would have been sent by their friends whether I had a referral system or not.

Referrals are great when you don’t have the money to spend on promoting. But, as budgets increase you need to be careful that referrals don’t become too expensive. You should always be lowering cost of acquisition, not increasing it.

Thoughts on bulk discounts in referral schemes

So why don’t we structure a referral system that gives me 20% off for each customer I refer. Again, in the above example my customer pays $50, so I would give $10 off when they refer a customer.

Compare bulk discounts to relative costs of other channels; and then look at volume. The referral scheme again is too expensive here. 10% off works, but what happens when I refer a second customer?

Referrals are easier on the Internet

If I buy and consume a product online, it is cheap and efficient to measure referrals. If I’m buying offline, it is harder and the cost of measurement increases; a cost which needs to be deducted from referral fees.

Most web startups also take little capital so referrals are a fast way to grow. Larger, traditional organizations find referrals difficult to measure and have the capital to focus on stronger ROI channels.

Fighting for referrers

Most companies do not yet offer fully evolved referral programs nor are they heavily promoted. As measurement becomes cheaper and existing channels become saturated there will be a stronger fight for referrers (those who recruit their friends or promote products for a fee).

The sad reality is I am an active referrer / affiliate on some products. But, like everybody, I have a line that I consider a helpful tip and spam which I will not cross. Personally, I try to not be plugging more than 2-3 products. So what happens when I like 4 products? Assuming they are equally valuable to my network I’m going for the highest payouts which again leads to a race to the bottom (or top!) in ROI terms. These limits vary among people but do exist.

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