This week’s post is a throw down to see just how much cloud wisdom can be packed into a Twitter post of 140 characters or less. I did the best I could, but what have you got? Comment with yours and be sure to re-tweet your favorites to spread the words. I’ve coined a new tag #twisdomofclouds for Twitter tracking, so be sure to tack it on if you have room. Tweet on. JY

• Cloud skeptics think control is safety, but fear of flying doesn’t make you a pilot. #twisdomofclouds tweet it!
• A-SaaS-in enterprise software has a license to kill. #twisdomofclouds tweet it!
• Life is better on cloud 99.999%! #twisdomofclouds tweet it!
• High customer acquisition costs are a pain in the SaaS. #twisdomofclouds tweet it!
• Every cloud has an API binding. #twisdomofclouds tweet it!
• Value your SaaS customers and they’ll last a lifetime. #twisdomofclouds tweet it!
• GNU’s code-envy. Free is the cloud. #twisdomofclouds tweet it!
• Hybrid SaaS : A half-SaaSed attempt at on-demand. #twisdomofclouds tweet it!
• Fans hack Stones virtual tour on Azure private cloud. Jagger warns “Hey! You! Get off of my cloud.” #twisdomofclouds tweet it!
• DYJHIW DIY turns N2 WTF? DWBH CUZ SAAS EZ123 w/ OTH TCO!
  #twisdomofclouds tweet it!
• Don’t be CRUD on the cloud. #twisdomofclouds tweet it!
• Get your PaaS in gear and your thread in the clouds. #twisdomofclouds tweet it!
• Private cloud? Raise your hand if you own the Internet. #twisdomofclouds tweet it!
• SaaS for hire. Have software. Will travel. #twisdomofclouds tweet it!
• Need a Web service? There’s an OP for that. #twisdomofclouds tweet it!
• Without customers, SaaS is vaporware. #twisdomofclouds tweet it!
• You gotta go viral to stand out from the cloud. #twisdomofclouds tweet it!
• No room to tweet with all these dumb #AaaS acronym-as-a-service tags!
  #SaaS #PaaS #IaaS #DaaS #EaaS #twisdomofclouds tweet it!

To include the retweet link in your comment, just add the following hyperlink:

<a href=”http://twitter.com/home/?status=RT+your+twisdom+here
+%23twisdomofclouds+http%3A%2F%2Fbit.ly%2FabbcJu” > tweet it! </a>
Please tack on the #twisdomofclouds hash tag and hyperlink http://bit.ly/abbcJu back to the post if you don’t need all 140 characters, so folks can find your tweet on Twitter and their way back here to your comment.

Well, I can’t be sure beyond a reasonable doubt, so you be the judge. On Feb 2, I published this post entitled Viral Growth Trumps SaaS Churn, which makes the simple case that the best way to fight churn (exponential decay) is with virality (exponential growth). About two weeks later on Feb 15, Seth Godin published this strikingly similar post on viral growth entitled Viral Growth Trumps Lots of Faux Followers, which makes the simple case that the best way to fight faux followers (exponential decay) is with a viral idea (exponential growth).

Hmmmm…great minds must really think alike!

First I should say, I love Seth Godin’s stuff. I’ve snagged way more of Seth’s stuff than vice versa, for example SaaS Do #4 Craft a Compelling Story is completely Seth Godin’s and is the main topic of his book All Marketers Are Liars (and, is listed in the Chaotic Flow Worthy Reads blogroll). Believe it or not, my wife Christy is currently reading Seth Godin’s latest book Linchpin as I write this (and highly recommends it). But, IF Seth Godin really is reading Chaotic Flow, I think at the very least a pingback or comment is in order. C’mon Seth, share the love.

As an avid admirer of all things ironic and self referential (like…uh…viral growth), I couldn’t pass on the opportunity to examine this particular case study in light of itself. So, I am proposing a second order derivative viral growth vs. big followers principal of Seth Godin’s first order derivative viral growth vs. faux followers principle of the original viral growth vs. churn principle.

Highly Connected Followers Trump Viral Growth

Seth’s principle that Viral Growth Trumps Faux Followers claims that it is better to spread a good idea to a small group and rely on the strength of the idea to move it along through viral growth than it is to spread a mediocre idea to a big group of faux followers by brute force, because their interest will soon wane and your idea will eventually die out. I’ve recast Seth’s depiction of this principle in the chart below.

Seth’s viral growth vs. faux followers chart shows how many people are talking about your idea at any given time. This version, which is more in line with the original viral growth vs. SaaS churn post shows the total number of people who have heard of your idea.

There is an underlying assumption in Seth Godin’s viral growth model that when removed is the source of this new principle. Seth assumes that all your followers are created equal, such the viral growth rate at which the idea spreads is constant. That is, I tell two friends, then they tell two friends, and so on. But, what happens when just one of your followers is an outlier that taps into another huge group of followers. Say, like…uh…Seth Godin. Or, Oprah. Let’s call this the Oprah Chain Reaction, as a recurring case of the Oprah Effect. Here I tell two friends, but one of them happens to be Oprah Winfrey. And, one of her friends happens to be Seth Godin, and so on. This principle is shown in the chart below.

Even if your idea is kinda stupid, influential followers may pass it along wider and faster
than a good idea that is waiting around for the hockey stick takeoff of viral growth.

In all fairness, I should note that this “new” viral growth vs. BIG followers idea is itself highly derivative. This Oprah Chain Reaction is really just a new name for a very old idea. It’s not what you know; its who you know. Or, recast for the fast paced world of social media…

It’s not what you tweet; it’s who’s following you!

For example, the original principle of viral growth trumping churn is an OK idea, but realistically the math is over 200 years old, and it isn’t like viral growth is going to improve your sex life or cure baldness (in which case Seth Godin and I would both be all over it!). Unfortunately, Chaotic Flow’s number of followers is much closer to 1,000 than 100,000, so viral growth appears to be the only option to widely spread an idea, even if it is just OK. Wait a minute! Seth Godin on the other hand is a VERY connected guy with lots of followers. So, let’s take a look at what happened when this just OK idea made it into his network of followers. Whereas the original viral growth vs. churn post has a measly 19 retweets at current count, Seth’s viral growth vs. faux followers post has a whopping 1,392 retweets (and climbing)! As another measure, let’s take a look at the results for the Google searches on viral growth and viral growth trumps.

Because Seth’s Blog has so many more backlinks than Chaotic Flow
he has more Google juice to spread the word with or without viral growth.
Hence, his post goes straight to the top of search results for viral growth.

Seth Godin’s followers retweet his posts to Google ubiquity.
So, search results for viral growth trumps are swamped with syndicated retweets and refeeds.
It is so cool that Google cut that deal with Twitter!
Chaotic Flow readers…GET WITH THE PROGRAM
and retweet those posts!

Quiz: What is the most successful enterprise SaaS application to date?
Hint: It’s not Salesforce.com

It is ironic, but the unfortunate fact is that most SaaS vendors see the Web as little more than the browser through which they deliver an enterprise software application. In fact, the phrase itself software-as-a-service, creates a subtle bias toward viewing the business as simply a piece of traditional software delivered on-demand over a network. Connecting an application to the Web unleashes disruptive economic forces that go far beyond multi-tenant architecture and reduced TCO. It enables viral organic growth, low cost customer acquisition, business productivity gains across-the-firewall, and new monetization models to augment simple license subscription. That is why the most creative SaaS vendors are realizing that the real opportunities for business innovation lie outside the firewall and are transforming their SaaS offerings into Web 2.0 businesses.

Below is a list of principles that can help you transform your low-cost, commodity SaaS into a high-value Web-based business.

Accelerate organic growth

• Master “free” online marketing tactics
• Streamline and automate the entire customer life-cycle

Reach out and become a hub on the Web

• Links, links, links
• Encourage community

Build the business into the product

• Automate the customer lifecycle
• Crowd-source new capabilities

Reach across the firewall to unleash disruptive economic forces

• Re-engineer external processes
• Integrate through the cloud

Monetize creatively

• Leverage the network
• Look beyond subscriptions

After I’ve had a chance to elaborate on each of these ideas in a separate post, I’ll provide the answer to my somewhat trick question above.  However, I’m hoping that the solution will emerge as obvious.

For better or for worse, I am old enough to remember the reengineering craze of the early nineties.  For those of you that are under 30, this was a monumental hype cycle throughout the technology consulting industry centered on redesigning business processes for order-of-magnitude gains in productivity by leveraging new client-server technology.  It was codified in the famous book:  Reengineering the Corporation by Michael Hammer and James Champy.

Brainstorming and out-of-the-box thinking were the order of the day, because creativity was the key ingredient to realizing the potential gains. However, creativity has not been the mantra of the SaaS revolution, the mantra of SaaS has been lowering TCO (total cost of ownership). Basically, take what you do now, make it multi-tenant, outsource it, and pay less.

While this is a great business proposition for customers, it places SaaS vendors squarely into highly-competitive, price-sensitive commodity businesses.  If you want to differentiate your offering, you must look beyond the client-server application you are replacing and ask yourself: How can I revolutionize the current business processes of my customer by connecting my SaaS offering to the larger Web? Or, more concretely by connecting it to users and applications outside the firewall.

A key point of difference is that the business processes in question are NOT internal processes (classic enterprise), but internal-external processes or even purely external. While 90’s style reengineering was about employee productivity gains, SaaS and cloud-based reengineering will center on prospect, customer, and partner processes and will derive order of magnitude gains in productivity from integration, network effects, user-generated content, and outsourced processing or data.

In earlier posts, I gave some specific examples that included Zendesk’s online support applications and B2B2C platform plays.  But, I believe that opportunities abound and that they will only increase as cloud computing becomes more the norm.  My poster child for this concept is Google AdWords/AdSense.  This application is rarely classified as SaaS, but it is clearly B2B(2C) software-as-a-service.  I think this is because it doesn’t look like a traditional enterprise client-server application, like CRM or ERP.   However, it does completely revolutionize a business process that crosses the firewall: demand generation.  And, if you buy what I’m selling in this post, you will now classify them as a new breed of enterprise SaaS CRM, just like email marketing platform can be considered as such. The fact that Google and Salesforce recently announced partnership and that Adwords is becoming more and more integrated into salesforce.com provides evidence enough.

If you think outside-the-box or rather outside-the-firewall, can you reach out across the Web to your customers prospects, customers, and partners or to the cloud to other applications and data to enable order-of-magnitude increases in productivity?  Can you envision entirely new killer applications that have not be made before?  If you can, then your have taken the first step toward breaking out of the SaaS mainstream and the hard life of low cost-based competition to the Web 2.0 world of innovation, differentiation and competitive advantage.

This is post number four in a series of five.

If you are a software-as-a-service (SaaS) provider and deliver your product over the Web, then by definition you are Web publisher, so act like one. Web publishers, whether their business is news, games, e-commerce, or a simple blog, are obsessed with increasing site traffic and converting it to registered users. On the Web, there is one and only one source of site traffic: links.

Links from search results, links from search ads, links from banner ads, links from websites, links from blogs, links from feeds, links from widgets, links from bookmarks, links from toolbars–links, links, links.  Becoming a hub on the Web means creating a nexus of incoming, high quality links to your website from sources that are relevant to your business, and most importantly relevant to your prospects’ needs. There is nothing else online as cheap or as effective in generating demand.

Links come in two categories: paid/transient and free/permanent.  The more free links you have, the fewer paid links you need.  Most SaaS vendors immediately jump on the SEM bandwagon to get paid search traffic.  They also apply SEO techniques to optimize keywords on their websites, but only obscure keywords are useful without high PageRank, and high PageRank requires (that’s right, you guessed it!) links.

What is your link strategy?  Links opportunities abound and arise naturally from your online business, but you have to be conscious of their critical improtance to captialize on them. For example, who is part of your potential online community e.g., customers, partners, investors, employees, colleagues, expert blogs, social networks, events, associations, directories, etc. and have you engaged them in a manner that generates online content and discussion that results in links? Do your traditional online marketing and PR activities generate tons of effective links?

Clicking on a link is often the first step in the online sales cycle.  Understanding and improving your Web presence is as important as (more important if you are a startup) improving your sales pipeline close ratios, because you have to get the leads in order to close them. So, are you measuring your Web visibility as acurately as your pipeline? Can you identify a qualified link as effectively as you can identify a qualified lead? Do you have a concrete plan to get more links and increase your PageRank?  If not, it is almost certain that the ROI on spending your marketing dollars to increase your organic web presence will be much higher than increasing your budget for SEM or banner ads.

This is post number 3 in a series of 5 on transforming SaaS for Web 2.0 success.

I spend about half my time working with SaaS companies and the other half working with Web 2.0 startups, and it disturbs me greatly when I see just how little interaction these two communities share.  The two things that I see again and again that disturb me the most are  a) most SaaS vendors are embarrasingly Web-unsavvy and b) most Web 2.0 vendors prefer to cobble together their own internal business systems out of open-source rather than sign up for really cheap, really good SaaS products and focus on their core business.

OK SaaS vendors, here is a Web-savvy self-test…

(questions in order of increasing difficulty)

a) Can your customers find you on the Web, learn about out on the Web, try you on the Web, and buy you on the Web without any help or physical intervention whatsover?  I’m not saying you shouldn’t sell or offer help if it speeds up your pipeline; I’m asking if you didn’t offer help, can they can buy without it.  If they can’t, you have inserted unnecessary offline obstacles into online your sales process.

b) All your qualified prospects are on the Web.  Are you an expert at online marketing?  Are you actively using your Web-based product to increase your organic Google juice?  Or, simply paying for SEM. Do you have a real blog and social media strategy?  Or, just a lame, uncomfortable attempt at a corporate blog.

c) Your benchmark for usability is not that client-server system you are displacing, it is eBay, Google and Facebook.  Is your product so intutitive that traditional training isn’t necessary?  Can users discover new capabilties as they go along?  Are you creating entertaining, instructional video or just a boring help file to educate users?

d) Is your application Web-aware and cloud friendly?  Do you have an open, standards-based approach to integration built on a simple Web services frameworks such as REST and JSON?  Do you natively support RSS and widgets? Are you actively cultivating a developer community and crowdsourcing extensions and mashups?

e) Your customer’s customers are on the Web.  Does your application reach out to them?  Does your application enable more efficient communication and interaction between your customer’s employees and your customer’s customers.  And, what about social interaction between customers? Or, are you just lowering TCO by duplicating the capabilities of some legacy client-server system with a browser interface and a multi-tenant database.  Sorry salesforce…a truly breakthough idea…but it’s soooo 1996, today’s SaaS vendors can do a lot more.

Why is Google so successful? Most people reply to this question by saying that it is the company’s superior search technology. This is why Google is so popular, but this is not why Google is such a successful company. Google is successful for one simple reason: it made advertising invisible, thus creating huge value for users and web publishers simultaneously. I believe this is the fundamental business challenge for platform makers of social media (social networks, blogs, rating systems, media sharing, etc.) and syndication (rss, widgets, toolbars, personal home pages, etc.), i.e.,. simultaneously delivering high value for web publishers and their communities without being intrusive.

Social media and syndication sit to the right and left of search. Search is great for catching people when they are already looking for something, i.e., in the middle of a purchase process. It is less effective in creating awareness, facilitating a decision and building brand loyalty. These are the strengths of social media and syndication, because these technologies leverage the organic, local connections of the Internet (as opposed to search which adds them up and presents the aggregate results). As such, they have the ability to reach out and engage the single individual, allowing him or her to discover your content surreptitiously, spread it virally and subscribe to it permanently.

This is enough to make businesses based on these technologies immensely popular. It is not sufficient to make them successful. Becoming an integral, useful and most importantly invisible part of the users purchase process will.

I like to think of Web syndication technologies today (RSS, podcasts, gadgets, toolbars, etc.) as analogous to HTML in the early 1990s. Revolutionary,incredibly useful, competing standards, gathering steam, and very difficult to commercialize.  This won’t last long.

More than once I’ve pointed out that marketers of B2B SaaS applications should look to the consumer side for inspiration to lower costs of sales by automating the sales and marketing process and integrating it thoroughly into the product itself.

However, after sitting on a panel on social media platforms at Digital Hollywood last week, I realized that there is considerable wisdom that can be transferred in the other direction. I’ve often maintained that B2B marketing is actually harder, or should I say more like pulling teeth, than B2C marketing. The reason for this is that B2B marketers have always had the luxury (or burden) of having deep access to the customer’s decision making process. B2B marketers have been engaged in the development of demos, white papers, reference accounts, referral programs, user groups and conferences, influencer marketing in the form of analyst relations, press relations, evangelist/advocate programs, and lead customer pilots, etc. etc. for decades (if not centuries!).

Whereas consumer marketers have been largely restricted to the two A’s of the well known AIDA model, i.e., generating awareness at the beginning of the buying cycle and providing promotional offers toward the end to motivate purchase—until the advent of social media. Unfortunately, the advertising practices and institutions for plugging into the two A’s are so well established that they are still being applied by rote to the ID stages, e.g., Facebook’s now infamous experience with beacon. Advertising practices in B2C have focused on doing things TO consumers in order to “drive awareness and purchase” whereas B2B marketing has been focused on solution selling practices that do things FOR their customers by focusing the customer’s need/pain/ROI and facilitating the purchase process to ensure that it proceeds as smoothly as possible.

IMHO, the changes we are seeing in marketing practices brought on by social media, syndication, and the Internet in general are completely analogous to the changes we’ve been watching inside the enterprise over the last 20 years and they require a similar reengineering mindset to master them (to resurrect a passé catchphrase from the 90’s). The emotional and rationale behaviors that people go through as they make a purchase and develop a relationship with your brand have not changed; however, the new technology allows significantly greater access to and opportunity for automation of these processes. For example, rating systems not only allow consumers to record their recommendations, they accelerate and broaden the reach of a natural, human buying behavior through automation. Both B2B and B2C marketers can learn a lot by reexamining what B2B marketers have been doing manually in the ID stages of the AIDA model with the intent of finding opportunities to reengineer and automate these using social media technologies.

If there are two areas of cross-disciplinary study I would recommend for every Web PR and Marketing professional it would be linguistics and postmodernism.   The reason is that Internet marketing (and branding/marketing in general) is driven by forces described by these disciplines…and the ideas have been around for 50 years, so there is no need to reinvent the wheel by figuring it out for yourself.  I’ve seen a number of blog posts triumphantly delcaring that The Medium is the Message, and while true, I personally didn’t learn much from them that I didn’t already know from postmodern theory.

I’d like to try and clarify an idea that I think is creating great turmoil for most PR firms and media outlets in general, from blogs to wikipedia to cnet.  The difference in Web 2.0 is not that the medium has suddenly become the message, the medium and the message have and always will be fundamentally inseparable, the difference now is that a) anybody can create a message and b) anybody can modify the media.  This change is blurring the lines between PR and marketing, and IMHO to be successful in PR 2.0 and Marketing 2.0 you have to get these two fundamental shifts.

Old school PR adhered to a certain set of ethical rules designed around a certain media structure.  News was FILTERED by experts in the form of reporters and editors who controlled access to FIXED media channels, e.g., a magazine, a newspaper, a TV show, etc.  This was the world of broadcast media.  The ethical PR person followed this model by making sure the message being offered was newsworthy and by pitching this newsworthy story to these ordained few.  While this paradigm still exists, it is being rapidly eroded by user generated content and the Web’s inherent fugibility.   Now there is a spectrum of credibility caused by variable filtering that extends from MySpace to Wikipedia to the New York Times.  And, the medium itself changes every nanosecond with each new link that is created.

Depending on your product or service, your news credibility requirements take on different flavors.  For B2C, sufficient credibility may simply be what everyone else is doing…a trend.  For B2B, it is more likely to come from the more traditional experts or perhaps some of the newer ones like popular blogs.  The pressure on PR firms and marketers alike to adapt and take advantage of this new paradigm is strong.  Many will not survive the transition.  The two most important ideas that must be relearned are that a) your communication channels are radically expanded by social media and user generated content…you must have a solid understanding of your potential online media outlets and the right message for each and b) it no longer stops there, you must learn to modify the medium to your advantage.  More concretely, don’t just go to the NY Times and pitch your case study, consider what your presence should be on social networks, blogs, etc that are relevant to your customers…ask yourself:  Where do my prospects congregate on line?  Can I create my own community around my brand?  Then, create your own content and adapt the message to both the audience and the medium: don’t just make a viral video, because they are hot…you might be as well served simply by posting insightful comments to the right blogs.  And finally, focus on the medium itself to accelerate distribution and build a trail that leads back to your own website.  Link, link, link. Syndicate, syndicate, syndicate. Everywhere, all the time.  A news story in the print version of the NY Times lasts a day and then goes into library archives.  A blog post or a gadget can be redistributed across the Web, and a link from your story back to your website on a page rank 9 site has a much longer lifetime in cyberspace than the print equivalent in physical space.

Viral and loyalty are two words you don’t often see right next to each other as a single unified marketing concept.  Viral marketing is almost exclusively associated with acquisition and loyalty as closely tied to retention, so they are natural opposites…right?  Wrong!  If you read my previous post on the syndication revolution being driven by the natural response of Web businesses to users spreading their time and attention all over the Web with the help of search, the inherent value of the web syndication model begins to emerge.  What if you could virally attract users to your content and then hold them there?  This IS syndication, whether it is RSS, podcasts, gadgets, toolbars, etc.  Syndication at its heart is two simple concepts:  distribution and subscription.  It allows you to follow your audience to the farthest reaches of the Web by virally distributing your content, and then it allows your potential audience to sign up for ongoing, deeper engagement through subscription.  How cool is that!

I am seeing this phrase, syndication revolution, more and more lately–largely related to the growth of Blogs and RSS.  However, I believe that this event will wash over the Web in a way that is much bigger than what have seen so far.  In a recent meeting with Michael Eisenberg of Benchmark Capital last week, he expressed an idea he had been encountering/formulating with other Benchmark portfolio companies that I thought was so powerful it was worth trying to encapsulate.

Simply put, the so-called syndication revolution can be viewed as a natural response of web-based businesses to the rise of search.  While the historical web monetization model has been to try and capture users within the confines of your website, search (Google in particular) makes its money by spraying users all over the Web.  Dave Winer’s earliest (pre-Google) posts on syndication characterize search engines as concentrators,  but in hindsight, the effect has been the exact opposite.  It is now easy to find zillions of small, low-traffic websites (like this blog) simply by typing in the right keywords.  Taken in this light, the coming syndication revolution (and it IS coming, it is just beginning) is really just about following your audience by pushing your content out to the rest of the Web and engaging them offsite, because despite how compelling your service might be, that is where they are going to be spending the bulk of their time online.

As the classic R&B song by the Persuaders goes, “It’s a thin line between love and hate.” The Annie Lennox remake of this is one of my favorites from her album Medusa. But, this post is not about my musical tastes. It is about the thin line that major brands are walking as they seek to deepen their interaction with consumers through social computing and other highly interactive Web 2.0 technologies. As anyone familiar with the song can tell you: the thin line is quite simply TRUST. Trust is created through personal investment, interaction and disclosure, the very things that these technologies enable. When trust is violated in a relationship, the deeper the relationship, the deeper the anger. So, the lesson of Facebook’s Beacon stumble is one that every Web 2.0 company should pay close attention to—the trust ante has been raised. Just as Web 1.0 privacy and trust issues sprung from Web 1.0 technologies, such as cookies and tracking a user’s Web surfing behavior, Web 2.0 issues will center on the much more delicate and private matters of personal profile information, social relationships and heretofore private interactions among friends, colleagues, acquaintances, customers and strangers. In Web 1.0, the solution was to never track a specific user’s identity for marketing purposes and to implement permission based marketing schemes. Mark Zuckerburg’s recent apology for making Beacon opt out by default, highlights the fact that in the frenzy of Web 2.0 even the basic Web 1.0 lessons have been forgotten. When in reality, we need stronger rules of the game to safeguard identity at the network and associated behavioral level.

Most of the excitement around Web 2.0 and social networking to date has centered on the unbelievable advertising opportunities it will create by directly leveraging word-of-mouth and micro-targeting. In recent posts, I’ve argued that this is fundamentally bartering a consumer’s privacy (because the service itself is free). I’d like to propose here that there is a better way. The safest and most effective way for a company to leverage Web 2.0 and social computing is by applying their inherent strengths of interactivity and personalization to establish trusted relationships with new customers and strengthen relationships with current ones—not manipulate them and weaken trust in their brands. For example, real-world word of mouth is driven by referrals. Online social networks can easily facilitate this process without disclosing identity or altering it in a fashion that is unnatural to consumers. Let’s take a look at Facebook’s Beacon in this regard. Below is the text from the Facebook site describing the benefits and details of Beacon for businesses using Facebook (clearly the pre-apology policy…but it is still up in this form as of today…need to get those departments in sync Facebook!):

“Simply determine which user actions you would like publish to Facebook and add a few lines of code to your web page. Facebook Beacon actions include purchasing a product, signing up for a service, adding an item to a wish list, and more. When a user performs the action, they will be alerted that your website is sending a story to their profile and have a chance to opt out. No additional user action is needed for the story to be published on Facebook, and users remain in control of their information.”

While Facebook has fixed the “opt out” problem (what were they thinking??!!), my personal feeling is that the service is still not a natural process for consumers in that you usually decide to recommend a service or product after you have tried it, not when you buy it. A much more natural process, would be to ask the user if he or she minds if the business checks in with them in a few days to see what they think. Maybe let them rate the product, and if the rating is good, ask them if they would like to recommend it to their friends. For another angle, compare Facebook Beacon to Amazon’s reviews. Amazon has it right, because it is helping consumers and publishers in their common interests, not one at the expense of the other.

In my last post, I argued that while Web 2.0 technologies offer great promise for more interactive and personalized marketing, they also entail commensurate ability to offend the consumer with SPAM, and therefore require greater vigilance to protect the trusted relationship between a brand and its customers , i.e., the more personal and interactive the communication, the greater the offense when trust is violated. But, I believe this is only half of the Web 2.0 privacy and trust dilemma.

At some point, we must stop and ask ourselves why so many of these great companies, that offer so much value by making the Web more personal, social and interactive are pursuing advertising-based business models where real revenue can only be achieved by asking consumers to barter their privacy in exchange for services. While it may not be much, most of us pay for mobile voice, text and wireless services, cable TV, books on Amazon, movie and game rentals, toys for the kids, and believe it or not, a premium profile on LinkedIn. The best advertising-based businesses, such as cable TV, Google or the Wall Street Journal are completely non-intrusive and often offer enough value to supplement this revenue with direct subscriptions. Are we really supposed to believe that a company like Facebook, with a multi-billion dollar valuation can’t charge for its services?
User adoption often becomes such a religion for Internet startups that it isn’t always obvious when, who or how to start charging for services. In this regard, I think that B2C companies can learn something quite valuable from the experiences in B2B software and SaaS: the cost of time and effort it takes to adopt a new application usually outweighs the price you ultimately would pay for it by at least a factor of 10X. The result is that you just can’t even give away bad software. If you are building a company that is purportedly delivering a service of such great value, but can’t conceive of a business model where some segment of business customers or consumers at some level of adoption will pay for it without bartering consumer privacy, you really should question the inherent value of your offering. Otherwise, you will most certainly end up on the same garbage heap of all the Web 1.0 companies that chose to venture down this same treacherous path.

I find it truly frustrating to watch Web companies continue to make the same mistakes regarding consumer privacy and trust, such as the recent Facebook fiasco. Are all these new wunderkind CEO’s who supposedly grew up on the Internet and therefore really “get it” just too young to remember the privacy and trust related stumbles of the Web 1.0 boom? Or, is this industry just so dynamic and chaotic that it erodes long term memory for those of us who did live through it? (I may have this problem myself, but I don’t believe it is Web-related) If there is one long standing marketing maxim that should be ingrained upon the memory of every Internet executive it is this: NEVER VIOLATE THE TRUST A CONSUMER HAS IN YOUR BRAND. For all the dinosaur bashing that offline marketing has had to suffer over the last 10 years, I will say this much in its defense: a consumer always has the option to turn off the TV, change the radio station or throw away a piece of junk mail with minimal effort or affront. One of the inherent advantages of passive, mass media is that you can always opt-out by tuning out at the very last minute without it becoming all that intrusive. This is not the case with interactive, personalized media (think telephones and telemarketers), because the offensiveness of SPAM grows in proportion to the level of engagement. Despite all the hoopla about micro-targeting that social media and other Web 2.0 technologies will ultimately enable, they will never provide the same level of protection to privacy and trust as the good old fashioned act of consistently asking for permission and enabling the consumer to control the experience.