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Netflix, Facebook, Apple and the brand community karma bank

By now I’m sure you’ve seen that, in a tersely-worded blog post, Reed Hastings of Netflix today rolled back the controversial decision to split the company into two separate services: a DVD-by-mail service that would have been named Qwikster and the on-demand streaming service that would have retained the Netflix name.

You may have also seen the announcement that Apple pre-sold 1 million units of its new iPhone 4S on the first day it was available, blowing away previous records. This positive news comes after many people (especially those in the media), expecting a completely new iPhone 5, greeted last week’s iPhone 4S announcement with disappointment.

Meanwhile, over at Facebook, privacy concerns continue to mount as the latest site enhancements caused some to question the addition of cookies that would supposedly allow Facebook to track users’ movements even once they log off the service.

I put these three events together because they showcase how three of the most successful and powerful brands of our time interact with their brand communities as they innovate quickly and aggressively.

What do all three companies share? First, confidence. They can see their destiny, they have a plan in place to control it, and no one—not even their customers—is allowed to slow their innovation engines down. What else do all three share? They all also have passionate communities of people who care deeply about them and watch every move they make closely.

In each case, these two forces—the company’s own self confidence and the pressure and expectations that a deeply engaged and passionate brand community brings—can lead to highly-charged, high-risk announcements, communications, and interactions.

So why is Apple so successful at keeping the relationship with its brand community healthy? Why is Netflix stumbling so badly? And why is Facebook in a dangerous spot?

In my view it comes down to a difference in the way each company approaches the give and take transactions with their brand community, the way they manage their community karma.

Creating a healthy brand community is a lot like managing a bank account. In order to remain in good standing, you must make more deposits in the karma bank than withdrawals. And this is where Apple, Facebook, and Netflix begin to differ.

On one end of the spectrum is Apple. The company showers us with delightful new products and innovations. Apple surprises us. Apple entertains us. But most of all, we’ve come to expect that almost every product Apple makes is going to fundamentally change the way we work and play. By creating great, impactful stuff that really does improve our lives in meaningful ways (I haven’t used a computer that runs Microsoft Windows in more than a decade… but I still remember EXACTLY how it felt), Apple is constantly making deposits in the community karma bank.

And while many folks were upset that Apple didn’t launch an iPhone 5 last week, I’ll point out that it was a stronger karma decision to launch an upgraded version of the iPhone 4 and call it a 4S than to launch an upgraded iPhone 4 and call it an iPhone 5 (as many other companies would have done). When an iPhone 5 is ready, we will know it, I’m sure.

That’s not to say that Apple doesn’t make karma withdrawals too. It does. Apple, you annoy me with your crappy restrictions on what I can do with music I download from you. I dislike your anti-competitive app store practices, and you scare me every time I have to click through a new version of your license agreement.

But when it comes right down to it, you give me more than you take, Apple, so I must admit I still love you.

On the other end of the spectrum we have our friends at Netflix. For years, Netflix was a dutiful investor in the karma bank. The company made their site elegant and easy to use, the social functionality and ratings were helpful, and, when streaming came along, it was like Christmas.

Personally, I loved Netflix. I loved it so much that I even bought a new TV last year on the strength of one feature—I could seamlessly stream Netflix movies directly to it.

But something changed. Over the last six months, I’ve noticed that Netflix has started making more karma withdrawals than deposits.

First, the Netflix site quit getting better. I don’t know about you, but I found it harder and harder to search for new movies. Netflix has always tried to push you toward the backlist titles and older movies, and I get why that made sense with the DVD-by-mail system. But why not make it easy for me to find your newest on-demand titles? I got frustrated and quit using it as much because it seemed like the site was actually losing searching/browsing functionality rather than getting better (was that my imagination?).

Then Netflix hit me with the price increase. Now I don’t mind paying more when I’m getting more, but at the time the price increase was announced it had become clear that Netflix’s agreements with distributors were souring and that they might even lose access to many on-demand films. This on top of my frustrations with the site, created my first negative Netflix experiences.

Still, Netflix had enough positive karma with me, built up over years, that we remained buddies.

Then, on September 19th, Reed Hastings sent me an email (under cover of night, at 3:31 AM, mind you) that started as an apology and quickly turned from mea culpa into double down. If you got the email, you were likely either A) angry or B) wondering if Reed might soon have an opening to hire you to help with his communications strategy.

Not only was Netflix going to keep the price increase, they were going to significantly degrade the customer experience by splitting the business in two and forcing their customers to log in to two completely different sites if they wanted to stay a customer of both the streaming and DVD-by-mail businesses. I understood the business strategy and why it made sense… but the communications strategy and the way the whole thing was positioned was just plain terrible. As someone in the communications business myself, I felt the need to look away.

And that was the moment Netflix made one more karma withdrawal than I could take. In the weeks since I received that email I have 1) bought a Roku box so I can stream on my TV from someone other than Netflix if I want to 2) started using the free streaming I get as a member of Amazon Prime and 3) made the decision to go on a break from Netflix until it gets its karma account back in order.

Apparently, I’m not alone. Since the announcement, the Netflix stock has fallen off a cliff, down from just over $200 to around $110 a share (and it was at $300 a share this summer). The announcement today may not have come soon enough, only time will tell.

Netflix, I still think we might have a future together, but man do you have some work to do.

Which brings us to Facebook. Now Facebook is a very interesting case to look at because of one thing that makes it very different than the other two companies: it doesn’t charge me any real money.

Facebook is a free service, and typically our expectations of a free service are very low. Investments in the karma bank add up quickly when the service is free. For years, Facebook has earned our love by helping us reconnect with long lost friends and relatives, while allowing us to actively keep in touch with more people at once than we ever could with a pen, phone, or email.

The real price of using Facebook—our privacy and personal data—was one that was originally only too high for a fringe group of digital conspiracy theorists. But over the past year, Facebook has become more and more intrusive, less respectful of what little privacy it still allows us, and has at the same time claimed more ownership of our personal data, using it in ways that are less clearly in our own interests.

The double whammy is that at the same time, the service is becoming incrementally less valuable to many people. Now that you are connected to all of these folks that you haven’t seen in 20 years and know what their kids are having for breakfast… then what?

I’ve noticed more and more of my friends on Facebook are going largely silent. It is good to have the network there when you need it and want to reach out to someone. But my perception is that the regular updates are decreasing, the number of times I’m tempted to click the “like” buttons has gone way down as I wonder how Facebook intends to exploit my click, and I’m unlikely to upload any personal photos or videos until I am 100% positive they aren’t going to show up in some banner ad for deodorant.

I wonder if Facebook is nearing a critical juncture. Because the service is free, I think Facebook will likely be able to avoid the rapid depletion of the karma reserve that Netflix has seen over the past few months. But as more people become aware of the true costs of using Facebook—in terms of loss of control of our privacy and personal data—and the incremental value of Facebook begins to level off, could the karma bank for Facebook go negative, even as a free service?

I don’t know. But if I were at Facebook, I’d certainly be starting to worry about it. Especially if I had a competitor like Google (with its own karma stumbles, but an overall better track record of respecting personal data) lurking, waiting for Facebook to make one too many withdrawals.

I’m sure many of you have strong views about these three brands. If you do, and either agree or disagree with my analysis, I’d love to hear your thoughts.

Thoughts from the HCI Engagement and Retention Conference in Chicago

Yesterday I had the privilege of participating in two panel discussions at the Human Capital Institute’s Engagement and Retention Conference in Chicago.

I moderated the first panel on behalf of my friends at the Management Innovation Exchange. This panel featured the winners of the first Human Capital M-Prize: Lisa Haneberg of MPI, Joris Luijke of Atlassian, and Doug Solomon of IDEO. The Human Capital M-Prize competition, run jointly by HCI and the MIX, was designed to find bold ideas, stories, and innovations highlighting ways to unleash the passion of people within our organizations.

Lisa began by presenting her winning hack, entitled Start with a better question to create a better talent management system: the Talent Management Cloud. She made the case that the “old kind” model where engagement and retention are owned within the HR function is fundamentally broken. Because there are so many factors well beyond the control and influence of HR alone, responsibility for talent management must be the responsibility of the whole organization. I’d encourage you to go take a look at Lisa’s winning hack if you are interested in learning how to put her more holistic model into practice.

Next, Joris, who came in all the way from Sydney for the conference, took on the performance review– something he described (accurately in my book) as universally hated by both employees and HR people around the world. Joris shared his story of how Atlassian designed a kinder, gentler, more humane performance review system and rolled it out within the organization. You can read Joris’s original story Atlassian’s Big Experiment with Performance Reviews on the MIX.

Finally, since I make no secret of being an IDEO fanboy, I was excited to share the stage with Doug Solomon, CTO of IDEO. Doug shared his winning story, entitled The Tube: IDEO Builds a Collaboration System That Inspires Through Passion. Frustrated by so-called collaboration systems that IDEO found desperately lacking, they took on the challenge of designing their own, using a model based on facilitating person-to-person interaction more akin to Facebook than your typical knowledgebase or database-driven collaboration system. Doug also shared that a company called Moxiesoft has taken The Tube and turned it into a product, which I can’t wait to go check out.

At the end of the session HCI announced a new M-Prize, which will run from now through December 9th. This M-Prize is called “Encouraging the Gift of Leadership” and will be an effort to discover innovative ideas for how we can stimulate and support the development of “natural” hierarchies, where influence comes from the ability to lead, rather than from positional power within organizations. Have a great idea? You should go enter it on the MIX.

Later that afternoon, I participated in another panel where Katie Ratkiewicz of HCI shared the results of a recent survey regarding the relationship between career development efforts within organizations and overall employee engagement. I was joined on the panel by Stuart Crabb, Head of Learning and Development at Facebook, Russell Lobsenz, Director of Talent Development at Orbitz, and Cathy Welsh, SVP of Leadership Consulting at Lee Hecht Harrison.

I was particularly interested to hear Stuart’s comments regarding Facebook’s approach to career development. Basically, his thinking is that career development is primarily the employee’s responsibility (not the company’s) to drive, something that I expect was fairly controversial to many in the room (judging from the data shared in the survey), but which I couldn’t agree with more fully.

While I was excited to hear him say it out loud (because I wasn’t sure whether I’d be driven from the room tarred and feathered if I’d done it on my own), I did acknowledge that there were prerequisites for an approach where employees are accountable for their own career development to work. In my view, there has to be an entrepreneurial culture in place in the organization where employees have the freedom to explore new opportunities. I certainly felt we had those sort of opportunities while I was at Red Hat and it sounds like there is a culture based on freedom and personal accountability at Facebook as well.

I want to thank my new friends at the Human Capital Institute for a great day and some wonderful hospitality. Also thanks to my friends in the MIX community and especially Lisa, Joris, and Doug for participating on the panel. I’ll see all of you again soon!

What does Google’s management change say about the open source way?

Last week, Google CEO Eric Schmidt announced in a post on his blog he was stepping aside and Google co-founder Larry Page would take on management of Google’s day-to-day operations as the new CEO. Although Schmidt is staying on as Executive Chairman for now and will continue to have an ongoing role in the company, many including myself, were surprised by the news.

I see Google and Red Hat both as fantastic poster children for openness as a successful business strategy. I’ve written many times about how the open source way deeply impacted our work at Red Hat even beyond building software. I’ve also written about Google and the open source way, and pointed to this famous post from Google’s Senior VP of Product Management Jonathan Rosenberg explaining Google’s commitment to openness.

But what does Google’s management change say about the open source way?

Before you answer, here are a few things I’ve read this week and found interesting:

[Read the rest of this post on opensource.com]

Facebook breaks the brand permission rules

Back in February, I wrote a post about how Google stepped beyond its brand permission limits with the launch of the Buzz platform, a classic brand mistake (read more about brand permission here or here). Over the last few months, Facebook has also moved into a dangerous brand space, and may be doing permanent damage to its brand in the process.

You’ve probably seen people (or participated in) spewing venom at Facebook about its privacy practices, so I certainly won’t rehash that stuff here. If this is news to you, and you want to see what people are saying and how Facebook is responding, this interview in The New York Times with Facebook’s VP for Public Policy from earlier this week is a good starting point.

So, beyond the (really good) privacy reasons, why is it so bad that Facebook is making more of your information public by default? What’s the brand mistake? Let’s again look to the brand tags site for some clues. According to the site, the top terms associated with Facebook are:

addictive
annoying
boring
college
community
friends
fun
kids
lame
myspace
networking
people
social networking
stupid
waste of time
young

I’ve put in bold a few terms I think are especially important. If I was to put them in a sentence, it’d read something like “Facebook is a social networking site where people have fun or waste time with their community of friends.”

For most people, this sentence describes the service they signed up for. And hundreds of millions of people must value the Facebook brand for this purpose, because Facebook has been one of the fastest growing platforms the world has ever seen.

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Is open source creating jobs?

On the heels of last week’s White House Jobs and Economic Forum, President Barack Obama announced a series of job creation ideas today in a speech at the Brookings Institution.

As I mentioned in my last post, Red Hat’s Jim Whitehurst was one of two technology industry CEOs who attended the White House forum last week, the other was Eric Schmidt from Google. Two things Red Hat and Google have in common? We are both strong supporters of open source and we are both hiring.

But this morning I had another thought– beyond the jobs at Google and Red Hat, are we– and other companies in the open source community– helping create jobs at a broader level? Meaning, are the products, services, and innovations of open source companies creating job opportunities for people who use what we make?

To find some data, I turned to Indeed.com, a search engine for job seekers that also has a fascinating job trends tool you can use to search on how often a particular term appears in job listings.

As a baseline data point, I looked at the chart for “receptionist,” a common job that might be a decent bellwether for job trends. The chart looks pretty much like you might expect:

Not great news for any receptionist looking for work. This term had once appeared in almost 2% of job postings, now it is hovering right below 0.8%.

Next, for some overall industry perspective, I looked at their page on Information Technology job trends. Not a lot of good news here either, unfortunately. These two pieces of information were disturbing:

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How to conduct a symphony of communications

The communications profession is in the midst of a revolutionary change (you might have noticed). In my mind, it boils down to a simple concept:

Old model = company has one voice

New model = company has many voices

Mr Conductor sez: we can make beautiful music together!

Ah, the good old days. It used to be easy to go to the “official company spokesperson” to get the scoop on what “the company” was thinking. Now, with the advent of Facebook, Twitter, blogs, and a bunch of other stuff that probably hasn’t even been invented yet, and the blurring lines between people’s personal and work lives (damn you, Google!), it’s a lot harder for us communications folks to stay in control of how the corporate message comes out.

If you are the head of communications for your company, what should you do? Lock all the doors, scare the employees into online silence, and continue the status quo? This is what some companies are doing. There are very real concerns with how and when employees use social media tools in a work setting.

But ultimately, the shift toward a company of many voices rather than one voice is going to happen whether you like it or not. As Bob Dylan said, “You don’t need a weather man to know which way the wind blows.”

So rather than forcing yourself into a sucker’s choice of “Should I communicate my corporate story well or allow my employees to be using social media at work?” perhaps there is a better question:

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Jim Whitehurst: 5 tips for competing in the 21st century

I spent two days this week at the Coach K Leadership Conference at Duke. It’s always good to get above the trees for a few days, and this experience was exactly that kind of opportunity. Jonathan Opp did a nice summary post on the conference here and you can see the live Twitter stream here.

Jim Whitehurst on stage at the Coach K leadership conference (photo by Jonathan Opp)

On Wednesday, Red Hat CEO Jim Whitehurst gave a keynote entitled “Competing as a 21st Century Enterprise Among 20th Century Giants.” Jim comes at this subject from a pretty unique vantage point: he is probably one of the few people in the world who has run both a 20th century company (Delta Airlines, as COO) and a 21st century company (that would be us, Red Hat).

In his presentation, Jim covered some of the things he has learned in moving from the command and control, military-inspired corporate environment of Delta (which is pretty similar to the structure of many of the other great 20th century companies) to the open source-inspired corporate structure here at Red Hat (if you want to learn more about Red Hat and the open source way, here and here and here and here are some posts that will help). In particular, Jim gave five tips that will help your company compete better in the 21st century world– I’ve summarized them below:

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Brands are like sponges, people

On Twitter yesterday, my friend Chris Blizzard mentioned to someone that I often say “brands are like sponges.” When I saw this, I realized that a) I haven’t said this in a while and b) I should say it more often because it is a freakin’ awesome way to think about brands. So I’m saying it again right now. Right here.

A brand is like a sponge. Except it is probably dirtier than this one.

It’s actually not my line. I got it from the Scott Bedbury book A New Brand World (one of the top ten books behind Dark Matter Matters). Near the beginning of the book, Scott, who is one of the masterminds behind the good ol’ days of the Nike brand in the 80s and the Starbucks brand in the 90s, provides one of my favorite definitions of what a brand is:

A brand is the sum of the good, the bad, the ugly, and the off strategy. It is defined by your best product as well as your worst product. It is defined by award-winning advertising as well as by the god-awful ads that somehow slipped through the cracks, got approved, and, not surprisingly, sank into oblivion. It is defined by the accomplishments of your best employee– the shining star in the company who can do no wrong– as well as by the mishaps of the worst hire that you ever made. It is also defined by your receptionist and the music your customers are subjected to when they are placed on hold. For every grand and finely worded public statement by the CEO, the brand is also defined by derisory consumer comments overheard in the hallway or in a chat room on the Internet. Brands are sponges for content, for images, for fleeting feelings. They become psychological concepts held in the minds of the public, where they may stay forever. As such, you can’t entirely control a brand. At best you can only guide and influence it.

Those last two lines have stuck in my mind since I first read them. First, the idea that a brand is a sponge, soaking up everything, both good and bad. And second, that you cannot control a brand, you can only guide and influence it.

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