The Challenge Dividend

AMD Marketing Competition

I don't usually click on banner ads, but last week I saw something intriguing in my Bloglines feed list, an ad directing me to see a video titled "Competition Matters" by AMD.  Since this blog is in the business of promoting competition and a driver of improvement, I took the plunge and clicked away.

It seems that AMD has set up a mini-site in which its CEO, Hector Ruiz, speaks about how competition drives improvement in the technology marketplace.  In this three minute segment, Ruiz speaks about how the telephone business saw little innovation until the government declared it an illegal monopoly and broke it up.  Where innovation used to look like a phone in a color other than black, now we have an extremely vibrant market that surprises us daily with new features, functions, and lower prices.

From just viewing the video I was not sure what Ruiz was driving at on behalf of AMD.  He is obviously the head of the challenger brand in the market, battling against industry leader, Intel.  He made mention of the need to encourage free markets in the future.  There was no specific action step or cause to champion.  Digging a bit deeper into the links, however, I found a another site that listed recent news in Europe, Korea and the State of New York in which Intel is being accused of anti-trust actions.  And I found a pdf of a legal challenge of Intel by AMD.  Net, this video is a part of AMD's effort to stoke the fire and win the PR war.

I will have to spend some more time researching this case before I pass my own verdict, but I like AMD's argument.  Open competition without unfair advantages is the market system that drives innovation in technology and every other market I have studied.  I also like that AMD is not just taking its message to the courtroom, but working to educate the broader consumer basis that challenge leads to improvement. 

2nd Blogging Anniversary

Two years ago this week I started The Challenge Dividend blog.  It is pretty amazing how fast time flies.  I can remember sitting at my home office and thinking about my very first post and where it could take me.

Last year I embraced the Challenge Dividend religion that I preach here by setting some very public goals for myself.  So let's compare my goals to how I performed:

1. Write another 150 posts - I've fallen short here, with 111 posts in the past year
2. Build out a model for applying the Challenge Dividend - nope, missed this one
3. Double my daily visitors/readers - I've met or exceed this goal, with 50 subscribers and growing daily visitor list.  Not off the charts yet, but improving.

The big reason I have missed my first two goals is that a little over 6 months ago I began another book project.  I will share more about this soon, but it is related to my day job and the future of marketing.  I am actually very proud of myself for keeping this blog going with two posts per week while spend huge chunks of time researching and writing another book (and keeping up with my regular job, family, and Guitar Hero play).

There were a few other highlights from the past year I'd love to share:

• The agent I'm working for on my work-related book saw this blog and fell in love with it.  She compared it to Freakonomics and The Tipping Point.  That sure made my month.
• My buddy Jonathan Richman helped me get some major digg attention to a couple of my posts.  I hit one-day records of 150 and 300 visits for two of them.
• I've made a few friends and contacts through people that have read my blog.  That feels great.

In terms of the year to come, I'm going to set more modest goals due to my heavy work on the other book project.  Seth Godin says that the best time to start marketing a book is three years before it comes out; it might be 4-5 years for me, which is fine.  I'll aim for 100 posts (2 per week), and continue to expand my traffic and readership. 

I am more confident than ever that this blog will lead to success one day.  And when I say success, I don't mean just getting it published - but rather developing a theory that can "make a dent in the universe," as Steve Jobs likes to say.  Keep reading!

The Coming College Crunch

Last week the Washington Post reported that after 15 consecutive years of growth, the number of college applicants will flatten next year and begin to decline.  It might seem like bad news for universities, but I believe this will help improve the college value equation for a generation of students.

For many years, colleges of all shapes and sizes have lived high on the hog.  A flood of increasing applicants gave them the right to increase tuition far above inflation, and they funneled money to bloated facilities and staffs.  This embarrassment of applicants has provided schools with too many resources and too little competition.  But now change is in the air.

I believe a reduction in applicants will cause some years of pain and belt-tightening, then perhaps will unleash a renaissance of improvement.  Already some schools are adjusting for more competitive times.  The 700-student Northland College in Wisconsin has repositioned itself as an environmental liberal arts school.  Trinity Washington University is building programs to attract more adult students.

We're only in the early innings of a resurgence in challenge for colleges.  Keep watching this space and I'll provide continual updates in the years to come.

Nowhere to Park Complaints

In our world of increasing competition and improvement, examples of monopoly power and lack of improvement really stand out.  Take my monthly parking lot...please.

I pay $60 per month to the Central Parking Corporation in Cincinnati, Ohio, a division of Allright Parking, for the right to park my car next to my office.  I have done so for nearly four years.  At least once per month for those four years, my parking pass has failed to trigger the gate to open.  When this happens, I am forced to back my car out into fast-moving traffic and pedestrians, and make my way down the road to another entrance a few hundred yards away.  Often people like me will get out of their cars and drag a sign in front of the gate to help fellow parkers know that it is "down" again.  This is extremely frustrating, fairly dangerous, and a horrible customer experience.  Usually I suck it up and walk into work in a worse mood.

A few days ago I was walking to my car for the ride home after work and noticed a bright red paper on my windshield.  It was a note from the Central Parking Corporation advising me that their rates for monthly parking would be increasing by $5 per month.  No reason was given for this 10% price increase, and since Central Parking and Hamilton County (which owns the land) collude to control all of the parking in the area I can assume it is simply a grab for more dollars by a monopoly power.

Then I drove to work two days later and got the dreaded gate malfunction again.  But this time I decided to act.  I grabbed my price increase letter and called to complain.  The woman who took my complaint was very nice.  She said, "Yeah, someone just called to say the same thing....it happens all the time when it rains."  Of course she offered no apology, promise of fixing it, or a discount for next month's fee. 

Now I know that Central Parking Corporation often gets calls from frustrated customers, and it knows that its equipment malfunctions when it rains.  So, after at least four years of this, why doesn't the company invest in a system that performs in the rain?  Or why not put some kind of small canopy over the sensitive signal box to protect it from rain?  Wouldn't that extra $5 times hundreds of spots pay for this minor investment that causes major dissatisfaction?

Of course not.  There is absolutely ZERO incentive for Central Parking to improve its service.  Its customers have no market choice.  Lack of challenge means a lack of improvement. 

I'm not 100% sure what the answer is.  I could see us parkers getting together to file a class action lawsuit against Central Parking, maybe asking for a refund for our hassle during these rainy days that screw up their system.  My preferred idea is that Hamilton County, a government organization that represents its citizens, should do more than just take a cut of Central Parking's dollars; rather, it should spend a few hours a year surveying the customers, and fine Central Parking if it fails to meet these very basic customer service issues.

I won't be holding my breath, though. 

Less Challenge in the Alps

From time to time I get a chance to share personal stories of challenge dividend dynamics, rather than simply commenting on a article or news item.  This week I will actually share two personal stories.

I spent last week at a company conference in Chamonix, France, a small ski town/resort in the Alps about an hour drive outside of Geneva.  My expectations for the resort were fairly high going in.  "The French Alps" sounds romantic to start with, and a few friends told me that this was well-known as a ski paradise - "The Aspen of the Alps."  I had not skied since junior high school in the mountains of North Carolina, so I opted out of skiing, but I was looking forward to the sights and sounds that a premium resort should hold.

Interestingly, I was fairly unimpressed by my visit.  Of course the scenery was beautiful and the French village cute, however our 3-star resort hotel was, frankly, a dump.  It featured tiny beds, poor food, threadbare towels, and decor that looked unchanged in a decade or more.  I am far from a travel snob, but after spending hundreds of nights in hotels around the world I was surprised at how crappy this was - especially as a premium tourist destination.

I compared this trip to another conference at Sun Valley, Idaho, about two years ago and a trip to Copper Mountain, Colorado when I was a kid.  Both were much nicer.  They lacked the French history and architecture, but had many more amenities.  They were updated and at least on-par with $200/night hotels that one finds in large U.S. cities.

So, why is Chamonix seemingly lacking?  My guess is (you guessed it) that the French Alps simply lack the competition that occurs in North American ski resorts.  Skiing in Europe is limited to a few towns and resorts in the crowded Alps, while in North America, there is a vast swath of ski options throughout the chain of the much longer Rocky Mountains.  In North America, there is more open land and open competition.  New resorts spring up often, forcing the existing ones to keep pace.  In the Alps, however, it just seemed as if there was little change and few new players.  As a result, the market slows down, competitors stabilize, and the quality begins to decay.  Lack of challenge means a lack of improvement.

Of course I cannot speak to the actual ski conditions.  Some tell me that maybe favorable tax laws encourage more improvement in the U.S..  And maybe my hotel was the exception.  I would love to get others' perspectives.  Let me know your experience...

Spitzer: A Bully Gets His Due

I believe Eliot Spitzer's fall can best be described by Shakespeare's quote in Hamlet: "hoist by one's own petard."  Since before the ancient Greek tragedies, likely since humans first huddled around fires together at night, we have been attracted by stories of the hero who falls because of his own arrogance.  News of Eliot Spitzer's frequent use of an escort service are just the most recent example of a lesson we need to constantly re-learn as a society.

Before this week my opinion on Spitzer was mixed.  On one hand, I was attracted by his stance as a defender of the little guy - a do-gooder who served as a challenging check on abuses of power by both business and government.  Over time, however, I began to see another side of the story, as he seemed more reckless and aggressive in his approach.  I started to frame him as an ambitious careerist who wanted a shot at the presidency some day. 

Now, as the story unfolds we see the real man behind the heroic facade.  First, we discovered that this man felt free to defile laws that he vigorously prosecuted and swore to defend.  His use of prostitutes defiled his pledge to his wife and family, in turn embarrassing and harming them for life.  Another innocent wife is paraded in front of reporters in a "show of support" because a husband couldn't keep his fly zipped.  Further details about his "odd requests" to the service will further sully his family as transcripts go public.

Now, as Spitzer's power quickly shrinks, is gone, other sources - who were previously hushed by fear of retribution - are divulging how Spitzer bullied his way through life.  Spitzer often made false charges, used press leaks and brought threats of prosecution to reach settlements and quiet critics.  Spitzer was nothing but a bully.

One of the top 5 quotes in the 2 years I have been writing this blog is "absolute power corrupts absolutely," and once again it holds true here.  Spitzer had free reign as a prosecutor to go after targets, and almost no one could check him.  This power naturally led to abuse, and while he bagged a few bad guys, there are innocents he soiled as well.

I am glad that Spitzer is going down because of his own arrogance.  It prevents our society from suffering from more of his unchecked grab for and use of power.  And like the ancient Greek and Shakespearian tragedies, his story reminds us to challenge tyrants, stay humble, and keep our word.

Challenger Bank Avoids the Subprime Mess

The financial news continues to cover the story of banks that are in trouble because they either gave risky mortgage loans or purchased risky packages of poor mortgage loans.  Just today the U.S. Fed agreed to let banks borrow $200 billion in Treasury money to keep them afloat.  And while nearly every major bank around the world has been touched, at least one stands apart: ING.

In its March 17, 2008 issue, Fortune reports that ING has had just 15 out of 100,000 mortgage foreclosures in its 8-year history as a mortgage lender.  This compares to 94,000 foreclosures at Countrywide bank in the past year alone. 

The secret, according to ING Direct CEO Arkadi Kuhlmann, is that his company chose not to package and sell its mortgages to others.  Instead, the company keeps all $26 billion in mortgages in house.  This means that ING keeps the risk, and, as a result, is smarter about how they lend money to home-buyers.  In other words, ING has embraced the challenge of risk rather than selling it off to others.  This keeps the bank profitable, and keeps it from getting borrowers in trouble with unsafe debt levels. 

The ING story is pretty amazing, as I'm sure its management and shareholders often asked the question of whether they, too, should cast package and sell the mortgage risk like all of their competitors.  Kudos to the company for holding the course, as it now means that they are reaping strong returns while their competitors flounder.

Netflix Prize - Getting Closer to a Winner

In October 2006, I wrote about Netflix's innovative use of a challenge to get hundreds or thousands of smart people to help it improve its service.  The company launched "The Netflix Prize" - an awards of $1 million for the first person or team to improve the quality of member movie predictions by 10%. 

Just a little over a year since the contest began, Wired magazine recently updated its readers on how the contest is going so far.  A few highlights:

• Over 25,000 people and teams have entered the contest to date.
• The best score is an 8.82% improvement in recommendations.
• Netflix has seen an improvement in customer retention alongside an improvement in its recommendation algorithm.  The company is not sure the two are directly related, but believes better recommendations are at least part of the story.

Much of the Wired story focuses on the rapid rose of Gavin Potter into the top ranks of the Netflix challengers.  Unlike most of the leading teams, which are math experts in universities, Potter is a retired operations consultant working on his own at home under the screen name "Just a Guy in a Garage."  A recent newcomer to the top 10, Potter has used theories of human psychology to build his prediction algorithm.  It is a strategy that the math majors have under-utilized to date, but now they, too are building off Potter's approach.

While it is still unlikely that Potter will win - his approach reminds us that many of the biggest advancements in science come from outsiders who challenge the status quo thinking.  Einstein was a patent clerk who barely got published.  Genetics was advanced by Gregor Mendel, a monk working alone in Austria.  And the human genetic code, in turn, was cracked thanks to the revolutionary approach of outsider Craig Venter.  Outsiders often win because they are not tied to the accepted norms of the current system, and they are attracted by the chance for quick fame and fortune. 

Thanks to establishing challenges and opportunities, companies like Netflix and their customers benefit from thousands of hours of brainpower from the smartest men and women in the world.