We have experienced 4 years of almost complete normalcy.  This is such a shock to Amelia and me to be back at the hospital face to face with the imperfections of her heart.  I was told it would happen, but I allowed myself to believe maybe we could escape it.  I was not prepared for this at all...she has just been so wonderfully normal...  I need to come to terms with the fact that we will be in and out of the hospital with her for all of her life.  Once I accept that...and she accepts that, this probably won't be as hard, still hard, but not as hard...hopefully.  Because Amelia was so young the last time she was in the hospital, this experience has been very hard on her - she has no memory of being here and she begs to go home and see Cormac and Zack.

Amelia is in the hospital tonight with Julia. Not an emergency, but urgent. Last week her pediatrician noticed an irregular heart beat. Today her doctors at Children's Hospital determined it is caused by scar tissue from the surgery four years ago. As she grows her heart is changing, and the electrical signal is now telling the heart to beat too fast. Tomorrow morning at 730 am her doctors are going to shock her heart and try to reset it, and then she'll likely be on a long-term drug regimen to stay healthy. She'll be in the hospital for two more nights for observation.

It was a bit lonely tonight putting Zack to bed by himself. Only one set of pajamas, one toothbrush, one book. We both prayed for a successful procedure tomorrow, and asked that she be able to come home soon.

Brooke, my graduate school classmate and Thistle shipmate, married Shannon in August. We had the crew in town at our house for the weekend. Very fun catching up with Johnny (who officiated and gave a truly amazing sermon - people were weeping), Holmstroms, Freeths, and Nettesheims. The theme was retro, 1930s-ish, so we did our best to dress classy, at least until the sake came out for the reception and we all went swimming in Salmon Bay.

What are the signs that you’re living in a revolution, and how would you know one is underway? There could be a relatively short and violent struggle, like the American Revolution that transformed the country’s political status from King’s colony to independent democracy. That kind of change would be hard to miss. But what if there was a much slower unfolding of mostly non-violent events that gradually transform how people live, like the Industrial Revolution. Would you even notice it happening?

We’re living through one of these slower events right now. The Digital Revolution is creating dramatic technological, political, social, economic and cultural change (see video below for more). Each day we hardly notice the difference, but over time the way we live is changing. Much of the change is exciting: social networking allows people to keep in touch as never before, and help elect a president. But some of the change is painful and scary: the newspaper business is in decline, and the future of journalism’s critical role supporting democracy is unclear.

Once in a while I post a link to an article about Internet advertising, and friends ask me why I want to share something so dull. In part, I’m just keeping up with my profession. But it’s also because I believe that figuring out how to monetize online businesses, and who controls this monetization, are two of the big open questions of the Digital Revolution. While we’re seeing the power of the Internet to mobilize individuals and groups, it’s also true that they who control the money control the age. So I think it’s a big deal that today Yahoo and Microsoft announced a search deal. This may seem like just a small step along the path of this revolution, but I think it’s a critical one. To maintain the financial health of the Internet and support all this wonderful innovation, we need competition and choice in online advertising. It may seem ironic, but in my view Microsoft is the only company that can help ensure a positive future for the Digital Revolution. Go Bing.

Clay Shirky on how social media is changing politics and government. An example of the more noticeable impact of the Digital Revolution.

Happy fourth birthday Amelia! We celebrated her big day under the warm sun at Golden Gardens beach with a few of her friends. The best present: her cardiologist gave her an annual echocardiogram this week and said her heart is totally stable.

As I sat on the beach looking at the Olympic mountains, blinking through the glint off Puget Sound, I realized that I used to mark my life through big, memorable, epic experiences, like racing across the Pacific or catching a 10 foot Hawaiian wave. Now, my life is marked by taking the wife and kids to the beach and watching my daughter blow out a candle on her birthday cupcake. And the funny thing is, I never would have guessed that something so simple could be so moving.

PS - After I lit the candle I put the match down on a polypro blanket and it burned a hole, which Zack (5) was trying to point out to me while shooting the vid.

PPS - Love my new iPhone 3G S, makes it so easy to shoot vids and upload to YouTube. I was always the worst at getting out the camera. Now I may actually record and share some of this stuff.

A few friends posted links to a long article in the New York Times last week on whales. To summarize the article: whales are amazing, almost human-like in their capacity for emotion, play, and interaction; the Navy's sonar may be killing some of them; it's too bad the Supreme Court declined to stop the Navy.

My most memorable experience with whales occurred when I was Officer of the Deck of USS Leftwich just off Oahu in 1996. Grey whales were in the middle of their migration from winter feeding grounds in Alaska to their breeding grounds in Mexico. They liked to linger on relatively shallow Penguin Bank, between Oahu and Molokai, which was a sort of way station on their long trip across the vast and deep Pacific basin. On a break between fleet exercises, I asked the sonar techs to tune our passive sonar to the whales' songs, and patch it over the internal communication box. We then followed the whales from a safe distance, watching them broach, tail slap, and play, while hearing them sing to each other. It was amazing.

Later, we ran an anti-submarine warfare (ASW) exercise with a Naval Reserve ship mostly staffed by civilian contractors. The ship had a special experimental array that could "sonify" the ocean, providing incredible intelligence about what was happening under the water. My destroyer's active sonar dome was highly advanced, but looking for submarines, especially quiet diesel electrics in busy waterways, was like stumbling around in darkness with a book of matches, lighting them up at random intervals, and hoping to find something. In  contrast, the experimental sonar was like simply turning on the lights. It was just a dramatic step-function difference.

Several months later I read that a pod of whales had beached themselves on the coast of Oregon at about the same time we had been conducting our exercise, and a few died. A marine researcher called the mass beaching bizarre, like the whales' internal navigation system had failed. The temperature gradients of the ocean create ducts that enable sound to travel great distances, and I wondered if our experiment could have been a contributor. As the Times article describes, these concerns are still playing out over a decade later between environmentalists and the Navy.

The issue is that there is no way to conduct effective training exercises without actually using sonar. And submarines are a threat we must be ready to address. Today a bunch of rag-tag Somali teenagers with AK-47s, rocket propelled grenades, and light-weight boats are causing a lot of havoc in the Arabian Sea and Gulf of Aden, which are the approaches to the important Suez Canal. Imagine what could happen if Iran decides to deploy highly trained professionals in modern diesel electric submarines to close the Straight of Hormuz, or China deploys nuclear submarines to the Straight of Malacca. Approximately 95% of the world's commerce and trade happens over water. Though the US Navy totally dominates the ocean, allowing the entire global trade system to function, we cannot take this dominance for granted.

So though I find whales very inspiring, support continued environmental and scientific research about them, and want the Navy to take as many actions as possible to protect them (which it is doing), we also need to make sure the Navy can continue to conduct realistic training exercises to counter a serious threat. As we used to train our watch officers: eternal vigilance in the price of safety. We need to find a way to save the whales, while also maintaining our ability to keep the seas free. The Supreme Court made the right decision.

Since I recently joined Spring Creek Group, a few family and friends have asked me what I do all day. Here’s an answer:

Mass marketing was the dominant form of marketing in the 20^th century. It arose in response to rapid urbanization and the desire for companies to push messages out to as many people as possible. In the 1920s radio was the primary technology for delivering mass media and marketing, and after the Second World War the television.

Then a funny thing happened: the next big technology to come along, the Internet, is turning out to be a more challenging environment for mass marketing. Radio and television rely on commercial breaks, interrupting content programming to deliver an advertisement. The Internet is a more cluttered and busy environment. People are able to tune out ads more easily, and advertisers are having a hard time figuring out how to apply the old mass marketing techniques to this new online medium.

Enter social media marketing. The Internet may have broken the old mass marketing paradigm, but it’s a fantastic place for people to find information, connect to each other, and widely share thoughts, feelings, ideas and opinions. This is how marketing primarily happened prior to radio and television: people gathered input from friends and family to make decisions. In fact, this has always happened, even in the age of mass media. The difference is that the Internet enables people to have much larger networks, moving from just 150 face-to-face connections to in some cases over 2 million digital ones.

Social media marketing builds on the discovery, sharing and communication strengths of the Internet. By engaging people in forums, blogs, article comments, and social networks, marketers help people discover and share business stories. This new media landscape can be a little intimidating: there is almost no buffer between the audience and the marketer, people are talking all the time, and the ground rules are very different. How should a marketer engage? Here are three basic steps to consider when approaching social media:

1. Set the strategy. Before we can start, we need to know what we’re trying to accomplish, how we’re going to do it, and how we’ll measure success. Like any other marketing effort, this requires setting our strategy.

• Determine the objective. As marketers we’re most often responsible for driving demand: building awareness, shifting preference, or deepening engagement. But our objectives could also be improving customer service or soliciting feedback for product development.
• Review the company’s assets. Every company has something unique and valuable that can be used in social media to fuel a conversation. This might be content, or it might be pre-existing relationships.
• Set the metrics. Each objective naturally lends itself to certain success metrics. These might be secure stories, move sentiment, drive leads and conversions, increase fans and page views, or resolve service requests.

2. Engage: but remember it’s a conversation, not a campaign. Mass marketing was about planning a campaign and projecting the message out to an audience. Now, we can engage directly with people. We’ve moved from one-way marketing campaign to a two-way conversation, which has several implications for how we conduct our marketing efforts:

• Start by listening and learning. Good conversationalists are good listeners. So though our natural instinct as marketers is to tell our companies’ stories, we instead need to start by listening to what customers are already saying. There’s a lot to be learned first.
• Follow the norms. In social media we must always be open, honest, authentic and transparent. Blatant shills or fake blogs are sure to be found out and cause a backlash.
• Find the influencers. Having lots of conversations with lots of people can be very time consuming. It just doesn’t scale very well. To ensure our efforts have the most impact possible, we can focus our outreach to the people who are most opinionated and connected – the influencers.
• Add value. To establish relationships and trust with influencers and others, we need to give before we ask for something in return. We can’t just show up for the first time and ask for a product review.
• Maintain a sustained effort. Relationships don’t happen overnight, and require continual investment of time and energy.

3. Track and optimize. We set our metrics when preparing our strategy. As with any other marketing effort, once we start to engage we’ll just want to track how we’re doing. We need to collect and analyze data, come up with insights about what’s happening and why, and then determine what actions to take to improve results.

In a way, the Internet has allowed marketing to come full circle, back to a time when word of mouth was the dominant way information was shared. We’re still in the early days with this technology and figuring out how to use it, but the basic structure just described – figure out what to do (strategy), do it (engage), and figure out if it’s working (track) – is a good starting point.

In April we sold Zango to blinkx, a video search company in San Francisco. It was a great strategic deal bringing together our strengths in consumer marketing and monetization with their strengths in technology and video content. Though it was probably the hardest time in the last 75 years to do a deal, somehow our CEO Keith Smith made it happen.

As part of the deal I was able to exit: three of our eight execs joined their management team, which is normal in these deals. I considered taking some time off, but quickly figured out that I like working and am happier when busy. So in May when Clay McDaniel, a Wallingford neighbor and graduate school classmate asked if I wanted to join his rapidly growing social media marketing agency, I jumped in.

Spring Creek Group is a great fit. Social media is hot right now, and it's fun to be part of a growing company with a strong value proposition (more on that later). Not to mention that I love my 15 minute commute through Fremont to our Westlake office overlooking Lake Union. On behalf of our clients we spend a lot of time doing research and interacting with consumers online, so ironically our "social media" office often feels more like a library than a party. But it's a talented and fun group of people and I look forward to work each day.

I worked at Microsoft with Steve Rider for about 18 months in 2005-2006. We built and launched live.com, which was an innovative customizable homepage (the technology was subsequently consolidated in mymsn). He was a truly talented developer, the kind that delivers more value than 10 average developers. Plus he was really nice, calm, soothing guy. I enjoyed working with him.

Last year he was diagnosed with Leukemia. He found me on Facebook and I followed his story, posting occasional words of encouragement in the comments. I remember how comforting it was to my family to receive similar notes when our daughter Amelia was in the hospital, and I was glad Steve reached out so I could do something similar for him. I drew strength and perspective from his story, marveling at his courage during the difficult treatments and ability to still find joy in short walks and small meals.

After a year of tough challenges, another surfaced last week: he caught pneumonia and went into the hospital again. Many of us sent him positive wishes, mostly expecting him to overcome them as he had done so far.

So I was not expecting, two days later, to log into Facebook and discover this:

Boom. I was standing at my home desk to quickly check status updates and the next thing I knew I was sitting on the floor. It was a surreal experience. Facebook has always been the voice of my friends, and suddenly here was one of them telling me he had died the day before. It just didn't make sense.

Of course, the post was submitted by Johanna, Steve's wife. I mourned him all weekend, and felt particularly moved while at church on Sunday, praying for his family and friends to find the strength to keep going. The funny thing is, before Facebook, I would have simply lost touch with Steve. We had good relations while working together, but our social worlds did not overlap. And now, thanks to the kind of technology that Steve built, I had a very real experience mourning his passing.

Steve, thank you for inviting me into your circle. You are missed terribly. Godspeed.

My brother Ryan and his wife Monica were in town from LA for Memorial Day weekend. We took the kids to EMP today to see the Jim Henson exhibit. They loved the stage and puppets.

Watch out for this video - very addictive song.

It's been a wet and windy start to the race season: with winds over 20 knots we got 1160 (our sail number) up to 12.1 knots boat speed, planing like crazy and throwing such much water up it was hard to see.

Starting to plane...

One of our fleet's best sailors dumps just behind us as we approach the leeward mark and start to douse the 'chute.

Rounding the leeward mark

Thanks to Bruce Sherman for the photos.

The job of marketing is often defined as creating demand: communicate to a target audience the company’s value proposition, and bring in customers. It’s about sales. While this is certainly an important company goal, I prefer a more challenging definition: drive value for both the company and its customers. This more expansive definition of marketing, often called loyalty marketing, requires a complete understanding of how value is created and distributed among the participants in the company’s ecosystem. Here’s how we did it at Platrium.

1. Value creation in the Content Economy

Platrium’s vision was to create a vibrant Content Economy, supporting four groups: consumers, advertisers, content creators, and web site publishers. Platrium gave consumers free access to media content (like games, videos, and ways to personalize email) in exchange for downloading a toolbar. We then sold this audience to advertisers, and shared the resulting revenue with content creators and small web site publishers. In turn these publishers helped us grow our consumer audience. It was a virtuous circle for all the participants.

2. Value hierarchy

A vision of how value is created is great starting point, but to be useful for loyalty marketing it needs to be made really specific and detailed. To do this at Platrium, we created a hierarchy of value drivers, decomposing each key metric into sub-metrics, and then monitored them closely.

• Audience Size. The primary driver of our business was the size and tenure of our consumer audience, measured by toolbar downloads. As we acquired and engaged more and more members, our business grew. We did this through our direct marketing efforts (D2C), a network of partners, the quality of our product experiences and the organic word of mouth they generated, and robust engagement efforts (including a rewards program) that reinforced the value of participation in these product experiences. We also closely tracked activity metrics that showed engagement and were correlated with longer lifetimes.
• Monetization. The second driver was the revenue we generated per member. This depended on the quality and quantity of our advertising products, as well as the depth and quality of our advertisers.
• Efficiency. The final driver was the efficiency by which we ran our consumer acquisition campaigns, the amount we paid for content, and the amount we shared with consumers via loyalty sweepstake prizes and charity campaigns.

Once we knew the value drivers, we needed a way to track how we were doing. The next three sections show how we did this: we created a value balance sheet and a value flow statement, and then implemented a regular process for tracking performance.

3. Value balance sheet

As noted above, the size and tenure of our audience was critical to driving value, so we needed to take stock of this asset. Here’s a simplified version of what we used. The actual reports tracked more acquisition channels and accounted for differences in geographical regions.

Our audience was so dynamic and relatively transient that we did not find it useful to track raw defections or churn rate. Instead, we focused on the size of our audience. But lifetime was still a key value driver, so we invented a metric called Lifetime Mass Index (LMI). Instead of looking at our entire audience, we looked at the members we acquired on a given day (a cohort), and tracked their retention over time. LMI was simply the sum of the area under the retention curve. We found that after just three days we had a pretty good idea of how the cohort would behave over its’ full 180 lifetime (we chose to end our value analyses after 180 days: many members remained longer than this but represented less than 10% additional value).

We could then pick a point in the cohort’s lifecycle (day 3 in our balance sheet), and track the performance over time. This enabled us to identify problems and see if our attempted solutions were effective in resolving.

Finally, on the balance sheet we tracked our spend acquiring new members and supporting our content creators. Since each install cost us money, it made sense to track it here, and this was a key input to finance.

4. Value flow statement

In a successful business value flows in two directions: from the company to customers, and from customers to the company. At Platrium, we tracked how active our members were with our offerings (our value to them), and how they were interacting with our advertising (their value to our advertisers and therefore to us).

For the value to members, we used Google Analytics to track several site metrics. We knew from custom studies by our business intelligence team that driving up activity resulted in longer lifetimes and higher revenue. We therefore tracked how much content – videos watched, games played – our members consumed, how often they visited us, and how long they stayed. We also promoted our content through engagement marketing offers, using internal tools to track how many members received our offers (reach), how often they received them (frequency, we didn’t want to overdo it and annoy them), and how compelling they found the offers (CTR, or click through rate).

For the value to the company, we used a detailed analysis called the Cycle Report (cycle was short for lifecycle). We took a full month’s cohort of new members, watched how they behaved for 20 days, and then used algorithms to predict what they’d do for the next 160 days. This allowed us to calculate the value of each new member, compare it to the cost (CPA, or cost per action, is industry term for what we paid a partner to send us a new member), and calculate our gross profit and gross margin. From the per unit economics it was relatively straightforward to scale up to business level view by multiplying by the volume of new members or installs.

The Cycle Report allowed us to track the return on our marketing efforts, and make sure that were always driving value for the company. We decomposed these metrics into very granular detail, looking at the return by partner, offer type, geography, channel, and brand. This allowed us to constantly fine tune our efforts by eliminating under-performing segments of the marketing mix and investing more heavily where performance was strong.

5. Process

The final step was to turn these reports into an ongoing process that would allow us to note important trends and take action as necessary. We set goals for all the metrics noted above, and put our bonuses on the line to meet them. Then we monitored our performance on the following rhythm:

Summary

Marketing can and should be more than just driving demand. The best marketers know that they are responsible for helping drive value for all the partners that participate in their company’s business ecosystem. Every business is different, but hopefully this case study can help drive some ideas on how to improve your business by using techniques from loyalty marketing.

Notes:

• All data in this entry is illustrative. In other words, I made it up to help demonstrate the points.
• For more on how to think like a Loyalty Marketer, try The Loyalty Effect by Frederick Reichheld. Though it was written in 1996, it’s still applicable as the Platrium case study shows.

Marketing for online businesses often feels like trying to fill a bucket with a hole in the bottom: new customers come in, but at the same time old ones leave. Many days it feels like no progress is being made. Even Twitter, with incredible viral growth powered by free promotion from celebrities like Ashton Kutcher and Oprah Winfrey, has a retention problem. According to a recent Nielson study, an astonishing 60% of Twitter users do not return the following month, a group Nielson calls the “Twitter Quitters.” The typical response from marketing when faced with low retention is often to increase acquisition efforts to replace the customers who leave. But when faced with a leaky bucket, instead of pouring in more water wouldn’t it make sense to at least plug a few of the holes?

They best way to solve a retention problem is to think about the end to end customer experience. Acquiring a new customer is not the finish line of marketing, it’s the starting line. What happens after acquisition is really critical to creating long term relationships with customers.

In my marketing experience, we’ve used a simple framework – we call if Lifecycle Marketing – to guide our engagement marketing efforts. We don’t just have “users” (the typical industry term) of our products. Rather, we think about helping to create active members of a community, and look for ways to guide them through the process of becoming more involved and vested in their community. We do this as follows:

• Identify member segments. It is important to have as much data as possible. Generally behavioral data is most valuable as it is concrete and actionable. Try to find activities that predict loyalty: members who watch a video, send an email, or invite a friend usually have longer lifetimes and create more revenue than those who don’t. Here’s a simple version of a segmentation framework:

 

As your marketing efforts expand, these segments can be made richer and encompass more detail about member activity. For example, gaming businesses might find it makes sense to distinguish between core and casual gamers, or within core between war gamers and sports gamers.

• Engage each segment. Each segment is assigned specific, targeted actions designed to drive deeper levels of engagement and membership. In executing these actions, there are three considerations: first, it’s important to develop content and offers that match the member segment. For new members this might simply be a checklist of three things they should do right away, or for loyal members it could be a sweepstakes offer with clear call to sign up for an additional service. Next, content and offers must be communicated effectively and as widely as possible, using email, blogging, web site promotion, or contextual hooks in the product itself. Members have different preferences for receiving information, and repetition of a message is valuable to drive action. Finally, seek ways to communicate interactively with members. Don’t just broadcast your messages, get out where your members are active and collaborate with them.
• Learn and improve. When starting engagement marketing programs, don’t try to be perfect. Instead, be open to learning. The best way to learn is to try lots of different types of offers and content, and allow feedback (via activity data) from your members to determine which ones work best. While retention rates are critical, they are an outcome of driving increased activity, so be sure to look at all the steps leading to more activity. Then draw lessons from those successes and create a list of best practices to guide future program development. Remember to keep a control group (~10% of total members) which receives no marketing treatments so you can measure lift and calculate the return on your investment. And once you think your programs are all set, go back and review the lifecycle all over again.

Following these basic guidelines of Lifecycle Marketing will help drive deeper engagement with your product. Since engaged members are loyal members, revenue will improve and the positive word of mouth will lower acquisition costs, creating a virtuous cycle for your marketing efforts.