The sports world is a great place to test and prove out management tactics and strategies.  Unlike in the commercial world where reasons for and measurement of product success are highly variable and of uncertain duration, sports leagues provide tightly controlled competitive conditions that enable consistent quantitative comparisons.  As a result, one can clearly see winning strategies and tactics based on season over season performance.  None is more remarkable than Sir Alex Ferguson’s record at Manchester United, probably the best record of any team/coach at the top leagues in any sport over the past 2+ decades.   Others have written about his management style here and here.

A great leader is one who gets the best from himself, his employees and customers regardless of the situation or context, be they sports teams, armies, corporations, academic institutions, societies, etc...  SAF's record is more remarkable in that it has improved the game of soccer at the same time.  Ultimately everyone is subservient and bound by the objective of the team, including himself.  SAF's style is best described as a disciplined command and control approach that leads to employee empowerment.   SAF has grown, bought, developed, and nurtured superstars and when they've outgrown the team, they are gone.

In his own words SAF says detail is important.  He is probably an acolyte of Edward Tufte, who says more information is better.  Through analytics SAF looks to gain the proverbial inch to give him the advantage over other teams.   In the process his staff has increased from 8 to 30 people over the past 2 decades.  In order to synthesize the information and implement strategy leading to individual decision making SAF has implemented an organizational matrix approach and not a management pyramid (or inverted one for that matter).  The result is that on game day ManU teams are capable of making decisions on the field and have the resolve to come from behind more often than not.

As a soccer purist, I love the style of play that is uptempo and attacking.  As a former defender I love when ManU’s right or left defenders become 3rd and 4th attackers up the wings.  A matrix approach makes it easy to move players around and to identify and increase their value relative to other players around them.  It empowers the weakest players and makes superstars out of players like Ryan Giggs and Paul Scholes; whom many would never have guessed to have such impact.

In a matrix, employees have a 3D view of their decisions and the impact on the rest of the organization (resource constraints/availability).  From a tactical perspective (micro level) it enables forwards to play midfield and help on defense and defenders to develop the attack and even score.  A good example is a player like Valencia who used to just be a wing at another team, but has become a very dangerous midfielder and at times has started at right-back for an injury-riddled defense this season.  Strategically (at a macro level), the matrix defines key technology/product (supply) and customer/market (demand) parameters.

With a matrix approach micro and macro perspectives can be easily related.  For instance, SAF would never have let an individual player take over an entire organization’s public perception as Luis Suarez has at Liverpool this season.

Because of the matrix SAF’s strongest player is often the one others' consider weakest.  Rather than focusing on his superstars, he focuses on getting the superstars to work with the weakest players and vice versa.  Bringing this closer to home and more timely, the New York Knicks should implement a matrix approach both at the management/organizational and team levels.  Just look at the benefit the team gets from a player considered weak, Jeremy Lin, but who passes the ball effectively to very talented players versus superstars like Carmelo Anthony or Baron Davis who have a hard time being “matrix” players.  Every organization should develop its matrix and understand how employees play together as a team and how the organization is positioned in competitive industries.

Back in 1996 we did seminal analysis of the 10 cent wireless minute introduced by Microcell of Canada and came up with the investment theme titled “The 4Cs of Wireless”.  To generate sufficient ROI wireless needed to replace wireline as a preferred access method/device (PAD).  Wireless would have to satisfy minimal cost, coverage, capacity and clarity requirements.  We found:

• marginal cost of a wireless minute (all-in) was 1.5-3 cents
  
• dual-mode devices (coverage) would lead to far greater penetration
• software-driven and wideband protocols would win the capacity and price wars
• CDMA had the best voice clarity (QoS); pre-dating Verizon’s “Can you hear me now” campaign by 6 years

In our model we concluded (and mathematically proved) that demand elasticity would drive consumption to 800 MOUs/month and average ARPUs to north of $70, from the low $40s.  It all happened within 2 short years.  (BTW, Microcell, the innovator, was at a disadvantage based on our analysis.)

What we didn’t realize at the time was that the 4Cs approach was broadly applicable to supply of communication services and applications in general.  We further realized the need for a similar checklist on the demand side to understand how the supply would be soaked up and developed the 4Us of Demand in the process.  We found that solutions and services progressed rapidly if they were:

• easy to use
• usable across an array of contexts
• ubiquitous in terms of access
• universal in their appeal

Look at any successful product or service introduction over the past 30 years and they’ve scored high on all 4 demand elements.  The most profitable and self-sustaining products and solutions have been those that maximized perceived utility demand versus marginal cost.  Apple is the most recent example of this.

Back in the 1990s I used to say the difference between wireless and wired networks was like turning on a lightswitch in a dark room filled with people.  Reaction and interaction (demand) could be instantaneous for the wireless network.  So it was important to build out rapidly and load the systems quickly.  Demand growth was exponential.  Conversely a wired network was like walking around with a flashlight and lighting discrete access points providing linear growth.

The growth in adoption we are witnessing today from applications like Pinterest, Facebook and Instagram (underscored in this blogpost from Fred Wilson) is like stadium lights compared with the candlelight of the 1990s.  What took 2 years is taking 2 months.  You’ll find the successful applications and technologies score high on the 4Cs and 4Us checklists before they turn the lights on and join the iOS and Android parties.

You all know MM Moore et Metcalfe.  But do you know M. Zipf?  I made his acquaintance whilst researching infinite long tails.  Why does he matter, you inquire?  Because M. Zipf brings some respectability to Moore et Metcalfe, who can get a little out of control from time to time. 

Monsieur Moore is an aggressive chap who doubles his strength every 18 months or so and isn’t shy about it.  Monsieur Metcalfe has an insatiable appetite, and every bit he consumes increases his girth substantially.  Many people have made lots of money from MM Moore’s et Metcalfe’s antics over the past 30 years.

Monsieur Zipf, on the other hand, isn’t one for excess.  He follows a rather strict regimen; one that applies universally to almost everything around us; be it man-made or natural.  M. Zipf isn’t popular because he is rather unsocial.  He ensures that what one person has, the next chap only can have half as much, and the next chap half that, and so on.   It’s a decreasing, undemocratic principle.   Or is it?

Despite his unpopularity, lack of obvious charm and people’s general ignorance of him, M. Zipf’s stature is about to rise.  Why?  Because of the smartphone and everyone’s desire to always be on and connected; things MM Moore and Metcalfe wholeheartedly support.

M. Zipf is related to the family of power law distributions.  Over the past 20 years, technologists have applied his law to understanding network traffic.  In a time of plenty, like the past 20 years, M. Zipf’s not been that important.  But after 15 years of consolidation and relative underinvestment we are seeing demand outstrip supply and scarcity is looming.  M. Zipf can help deal with that scarcity.

Capacity will only get worse as LTE (4G) devices explode on the scene in 2012, not only because of improved coverage, better handsets, improved Android (ICS), but mostly because of the iconic iPhone 5 coming this summer!  Here’s the thing with 4G phones, they have bigger screens and they load stuff 5-10x faster.  So what took 30 seconds now takes 3-10 seconds to load and stuff will look 2-3x better!  People will get more and want more; much to MM Moore’s et Metcalfe’s great pleasure.

“Un moment!” cries M. Zipf.  “My users already skew access quite a bit and this will just make matters worse!  Today, 50% of capacity is used by 1% of my users.  The next 9% use 40% and the remaining 90% of users use just 10% of capacity.  With 4G the inequality can only get worse.  Indignez-vous!  Which is the latest French outcry for equality.”  Paradoxically, Zipf's law is actually democratic in that each person consumes at their marginal not average rate.  The latter is socialism.

Few of us will see this distribution of usage as a problem short-term, except when we’re on overloaded cellsites and out of reach of a friendly WiFi hotspot.  The carriers will throw more capex at the problem and continue to price inefficiently and ineffectively.   The larger problem will become apparent within 2 years when the 90% become the 10% and the carriers tell Wall Street they need to invest another $50B after 2015 just after spending $53B between 2010-2014.

Most people aware of this problem say there is a solution.  More Spectrum = more Bandwidth to satisfy MM Moore et Metcalfe.  But they’ve never heard of M. Zipf nor understood fully how networks are used.  Our solution, extended as a courtesy by M. Zipf, is to “understand the customer” and work on “traffic offloading” at the margin.  Pricing strategies, some clever code, and marketing are the tools to implement a strategy that can minimize the capital outlays, and rapidly amortize investment and generate positive ROI.

We’ve been thinking about this since 1996 when we first introduced our 4Cs of Wireless (cost, coverage, capacity and clarity) analyzing, understanding and embracing 10 cent wireless pricing (introduced by French Canada's revolutionary MicroCell).  As a result we were 2-3 years ahead of everybody with respect to penetration, consumption and wireline substitution forecasts. 

We also created an optimal pricing and selling plan that increased ARPUs and effective yield and were vastly superior to all you can eat (AYCE) and eat what you want (EWYW) plans.  Here’s a snapshot of that analysis that is quite simple and consistent with Zipf's law and highly applicable today.  In fact, it is even more useful since extreme consumption of data will tend to occur disproportionately in the fixed mode.  I let you come up with your own solutions.  À bientôt!  Oh, and look up Free in France to get an idea of where things are headed.  What is it about these French?  Must be something about Liberté, égalité, fraternité.

Related Reading:
It's All in Your Head by Robert Metcalfe

Every institution, every industry, every company has or is undergoing the transformation from analog to digital.  Many are failing, superseded by new entrants.  No more so than in the content and media industries: music, retail, radio, newspaper and publishing.  But why, especially as they’ve invested in the tools and systems to go digital?  Their failure can be summed up by this simple quote, “Our retail stores are all about customer service, and (so and so) shares that commitment like no one else we’ve met,” said Apple’s CEO. “We are thrilled to have him join our team and bring his incredible retail experience to Apple.”

Think about what Apple’s CEO emphasized.  “Customer service.”  Not selling; and yet the stores accounted for $15B of product sold in 2011!  When you walk into an Apple store it is like no other retailing experience, precisely because Apple stood the retail model on its head.  Apple thought digital as it sold not just 4 or 5 products--yes that’s it—but rather 4-5 ecosystems that let the individual easily tailor their unique experience from beginning to end.

Analog does not scale.  Digital does.  Analog is manual.  Digital is automated.  Analog cannot easily be software defined and repurposed.  Digital can.  Analog is expensively two-way.  With Digital 2-way becomes ubiquitous and synchronous.  Analog is highly centralized, Digital can be easily distributed.

With Digital the long tail doesn’t just become infinite, but gives way to endless new tails.  The (analog) incumbent sees digital as disruptive, with per unit price declines and same-store revenues eroding.  They fail to see and benefit from relative cost declines and increased demand.  The latter invariably occurs due to a shift from "private" to public consumption, normal price elasticity, and "application" elasticity as the range of producers and consumers increases.  The result is overall revenue growth and margin expansion for every industry/market that has gone digital.

Digital also makes it easy for something that worked in one industry to be easily translated to another.   Bill Taylor of Fast Company recently wrote in HBR that keeping pace with rapid change in a digital world requires having the widest scope of vision, and implementing successful ideas from other fields.

The film and media industries are a case in point.  As this infographic illustrates Hollywood studios have resisted “thinking digital” for 80 years.  But there is much they could learn from the transformation of other information/content monopolies over the past 30 years.  This blog from Fred Wilson sums up the issues between the incumbents and new entrants well.  Hollywood would do well to listen and see what Apple did to the music industry and how it changed it fundamentally; because it is about to do the same to publishing and video.  If not Apple then others.

Another aspect of digital is the potential for user innovation.   Digital companies should constantly be looking for innovation at the edge.  This implies a focus on the “marginal” not average consumer.  Social media is developing tremendous tools and data architectures for this.  If companies don’t utilize these advances, those same users will develop new products and markets, as can be seen from the comments field of this blog on the financial services industry.

Digital is synonymous with flat which drives greater scale efficiency into markets.  Flat (horizontal) systems tend toward vertical completeness via ecosystems (the Apple or Android or WinTel approach).  In contrast, vertically integrated monopolies ultimately fail because they don’t scale at every layer efficiently.  Thinking flat (horizontal) is the first step to digitization.

Related Reading:
US Govt to Textbook Publishers: You Will Go Digital!

Data is just going nuts!  Big data, little data, smartphones, clouds, application ecosystems.  So why are Apple and Equinix two of only a few large cap companies in this area with stocks up over 35% over the past 12 months, while AT&T, Verizon, Google and Sprint are market performers or worse?   It has to do with pricing, revenues, margins and capex; all of which impact ROI.  The former’s ROI is going up while the latters’ are flat to declining.  And this is all due to the wildness of mobile data.

Data services have been revealing flaws and weaknesses in the carriers pricing models and networks for some time, but now the ante is being upped.  Smartphones now account for almost all new phones sold, and soon they will represent over 50% of every carriers base, likely ending this year over 66%.  That might look good except when we look at these statistics and facts:

• 1% of wlx users use 50% of the bandwidth, while the top 10% account for 90%.  That means 9 out of 10 users account for only 10% of network consumption; clearly overpaying for what they get.
• 4G smartphone displays (720x1280 pixels) allow video viewing that uses 300x more capacity than voice.
• Streaming just 2 hours of music daily off a cloud service soaks up 3.5GB per month
• Carriers still derive more than 2/3 of their revenues from voice.
• Cellular wireless (just like WiFi) is shared. 

Putting this together you can see that on the one hand a very small percentage of users use the bulk of the network.  Voice pricing and revenues are way out of sync with corresponding data pricing and revenues; especially as OTT IP voice and other applications become pervasive. 

Furthermore, video, which is growing in popularity will end up using 90% of the capacity, crowding out everything else, unless carriers change pricing to reflect differences in both marginal users and marginal applications.  Marginal here = high volume/leading edge.

So how are carriers responding?  By raising data prices.  This started over a year ago as they started capping those “unlimited” data plans.  Now they are raising the prices and doing so in wild and wacky ways; ways we think that will come back to haunt them just like wild party photos on FB.  Here are just two of many examples:

• This past week AT&T simplified its pricing and scored a marketing coup by offering more for more and lowering prices even as the media reported AT&T as “raising prices.”  They sell you a bigger block of data at a higher initial price and then charge the same rate for additional blocks which may or may not be used.  Got that?
  
• On the other hand that might be better than Walmart’s new unlimited data plan which requires PhD level math skills to understand.  Let me try to explain as simply as possible.  Via T-Mobile they offer 5GB/month at 3G speed, thereafter (the unlimited part) they throttle to 2G speed.  But after March 16 the numbers will change to 250MB initially at 3G, then 2G speeds unlimited after that.  Beware the Ides of March’s consumer backlash!

Unless the carriers and their channels start coming up with realistic offload solutions, like France’s Free, and pricing to better match underlying consumption, they will continue to generate lower or negative ROI.  They need to get control of wild data.  Furthermore, if they do not, the markets and customers will.  With smartphones (like Apple's, who by the way drove WiFi as a feature knowing that AT&T's network was subpar) and cloudbased solutions (hosted by Equinix) it is becoming easier for companies like Republic Wireless to virtually bypass the expensive carrier plans using their very own networks.  AT&T, VZ, Sprint will continue to be market performers at best.

“There is no clear definition, but usually the Singularity is meant as a future time when societal, scientific and economic change is so fast we cannot even imagine what will happen from our present perspective, and when humanity will become posthumanity.”  Futurist Ray Kurzweil wrote the Singularity is near in 2005 and it sure felt that way at CES in Las Vegas in 2012. 

In any event, we didn’t come up with this association.  Matt Burns at TechCrunch did during one of the live streamed panel discussions from the show floor.  But given that we’ve been at the forefront of mobile devices and networks for 2 decades, we couldn’t have said it any better.  After all this time and all these promises, it really felt like all the devices were connected and this app-ecosystem-mass was beginning to move at a pace and direction that none of us could fully explain.

Vernor Vinge, a sci-fi writer, coined the expression back in the early 1990s.  When you look at the list of publications at the Singularity Institute one can’t help but think that the diaspora of different applications and devices self organizing out of CES 2012 isn’t the beginning of AI.  Will AI develop out of the search algorithms that tailor each individuals specific needs, and possibly out-thinking or out-guessing the individual in the process?

We probably won’t know the answer for at least a decade, but what we do know is that we are about to embark on a wave of growth, development and change that will make the past 30 year WinTel-Internet development look embryonic at best.  After all the Singularity is infinity in mathematical terms.  Hold onto your seats.

Yahoo executed on the portal concept better than any other company and one time was worth $113B.  Today it is worth $17.6B and is trading at 12.9x operating cash flow.  But its interest in Chinese and Japanese subsidiaries is $19B pretax or $13B aftertax.  Either way YHOO is absurdly cheap on $5B of revenue and $1.4B cash flow and 700 million users.  So new CEO Thompson has a chance to pull off the turnaround of the century for a company that is hard to define by many.

What would we do in his shoes?

First, we would go back to what made Yahoo so valuable in people’s eyes to begin with, namely an approach that used others’ content and turned it into gold via traffic streams and advertising revenue.  As a tools and application company they have been pretty poor at monetizing their innovations.  Ultimately, the chief reason people came to Yahoo was the breadth and easy accessibility of the information, making people shout “yahoo” in joy.  The brand is a great brand after all and one of the real internet originals which will fix itself.

So what is the “new” content today?  Applications.  Yahoo should evolve from content portal to "app-portal".  More specifically we are about to witness an explosion of cross application solutions and commerce that will develop entire new ecosystems of revenue opportunity.  And these will exist across multiple platforms and screens as one writer points out.  Facebook is trying to harness this opportunity with Opengraph, but already people might be concerned that it is just too much confusion and overkill and TMI.

Yahoo can not only remove that confusion but allow people to tailor their own environments.  HTML5 and connectivity across smartphone, TV, tablet and PC/ultrabook will pave the way.  Understanding and harnassing the big data required to do this is one of Thompson’s key attributes.  At the same time virtual currencies can be created to monetize this interactivity beyond mere advertising and that’s what Thompson brings from Paypal.

With over 70 different services/tools and 14,000 employees, Thompson will definitely have to restructure, reduce and refocus in order to have the resources to aggressively develop an app-portal future.

Counter-intuitive thinking often leads to success.  That’s why we practice and practice so that at a critical moment we are not governed by intuition (chance) or emotion (fear).  No better example of this than in skiing; an apt metaphor this time of year.  Few self-locomoted sports provide for such high risk-reward requiring mental, physical and emotional control.  To master skiing one has to master a) the fear of staying square (looking/pointing) downhill, b) keeping one’s center over (or keeping forward on) the skis, and c) keeping a majority of pressure on the downhill (or danger zone) ski/edge.  Master these 3 things and you will become a marvelous skier.  Unfortunately, all 3 run counter to our intuitions driven by fear and safety of the woods at the side of the trail, leaning back and climbing back up hill.  Overcoming any one is tough.

What got me thinking about all this was a Vint Cerf (one of the godfathers of the Internet) Op-Ed in the NYT this morning which a) references major internet access policy reports and decisions, b) mildly supports the notion of the Internet as a civil not human right, and c) trumpets the need for engineers to put in place controls that protect people’s civil (information) rights.  He is talking about policy and regulation from two perspectives, business/regulatory and technology/engineering, which is confusing.  In the process he weighs in, at a high level, on current debates over net neutrality, SOPA, universal service and access reform, from his positions at Google and IEEE and addresses the rights and governance from an emotional and intuitive sense.

Just as with skiing, let’s look at the issues critically, unemotionally and counter-intuitively.  We can’t do it all in this piece, so I will establish an outline and framework (just like the 3 main ways to master skiing) and we’ll use that as a basis in future pieces to expound on the above debates and understand corporate investment and strategy as 2012 unfolds.

First, everyone should agree that the value of networks goes up geometrically with each new participant.  It’s called Metcalfe’s law, or Metcalfe’s virtue.  Unfortunately people tend to focus on scale economies and cost of networks; rarely the value.  It is hard to quantify that value because most have a hard time understanding elasticity and projecting unknown demand.  Further few rarely distinguish marginal from average cost.  The intuitive thing for most to focus on is supply, because people fear the unknown (demand).

Second, everyone needs to realize that there is a fundamental problem with policy making in that (social) democrats tend to support and be supported by free market competitors, just as (conservative) republicans have a similar relationship with socialist monopolies.  Call it the telecom regulatory paradox.  This policy paradox is a function of small business vs big business, not either sides’ political dogma; so counter-intuitive and likely to remain that way.

Third, the internet was never open and free.  Web 1.0 resulted principally from a judicial action and a series of regulatory access frameworks/decisions in the mid to late 1980s that resulted in significant unintended consequences in terms of people's pricing perception.  Markets and technology adapted to and worked around inefficient regulations.  Policy makers did not create or herald the internet, wireless and broadband explosions of the past 25 years.  But in trying to adjust or adapt past regulation they are creating more, not less, inefficiency, no matter how well intentioned their precepts.  Accept it as the law of unintended consequences.  People feel more comfortable explaining results from intended actions than something unintended or unexplainable.

So, just like skiing, we’ve identified 3 principles of telecoms and information networks that are counter-intuitive or run contrary to accepted notions and beliefs.  When