Lone Gunman

Among the many valid responses to the Quora ques­tion of why soft­ware devel­op­ment task esti­ma­tions are often off by a fac­tor of 2–3, Michael Wolfe, CEO of Pipewise, describes exactly why this is with­out once men­tion­ing ‘soft­ware’ or ‘project’.

Instead, Wolfe elo­quently pro­vides undoubt­edly the best anal­ogy I’ve ever heard for explain­ing the dif­fi­culty in pro­vid­ing esti­mates for soft­ware projects: a cou­ple of friends plan­ning a coastal hike from San Fran­cisco to Los Ange­les and start­ing their journey.

Their friends are wait­ing in LA, phone calls have already been made push­ing the date back…

Man, this is slow going! Sand, water, stairs, creeks, angry sea lions! We are walk­ing at most 2 miles per hour, half as fast as we wanted. We can either start walk­ing 20 hours per day, or we can push our friends out another week. OK, let’s split the dif­fer­ence: we’ll walk 12 hours per day and push our friends out til the fol­low­ing week­end. We call them and delay din­ner until the fol­low­ing Sun­day. They are a lit­tle peeved but say OK, we’ll see you then. […]

We get up the next morn­ing, ban­dage up our feet and get going. We turn a cor­ner. Shit! What’s this?

God­damn map doesn’t show this shit!. We have to walk 3 miles inland, around some fenced-off, federally-protected land, get lost twice, then make it back to the coast around noon. Most of the day gone for one mile of progress. OK, we are *not* call­ing our friends to push back again. We walk until mid­night to try to catch up and get back on schedule.

Of course, this isn’t exactly a new anal­ogy: it’s apply­ing the ideas behind Benoît Mandelbrot’s paper, How Long Is the Coast of Britain?, pub­lished back in 1967, to soft­ware esti­ma­tion. Still, it works perfectly.

If you like Wolfe’s writ­ing style and want to read more, he runs a blog called Dear Founder.

Update: And of course, there’s always O.P.C.

New and poten­tially dis­rup­tive music stream­ing ser­vices are hav­ing a hard time break­ing into the mar­ket, with many ana­lysts blam­ing their busi­ness mod­els and oth­ers blam­ing the con­trac­tual demands from labels for the trou­bles encoun­tered. There are also com­plaints about the roy­al­ties paid to artists and poor rev­enues of exist­ing ser­vices.

Michael Robert­son–founder of MP3Tunes and MP3.com–attempts to lift the veil on the indus­try by look­ing at some of the (you could safely say “unrea­son­able”) con­trac­tual demands placed on music stream­ing ser­vices by record labels:

Gen­eral deal struc­ture: Pay the largest of A) Pro-rata share of min­i­mum of $X per sub­scriber, B) Per-play costs at $Y per play, C) Z per­cent of total com­pany rev­enue, regard­less of other busi­ness areas.

Labels receive equity stake: Not only do labels get to set the price on the ser­vice, they also get par­tial own­er­ship of the company.

Up front (and/or min­i­mum) pay­ments: Means large amounts of cash are nec­es­sary to even get into the game. […] This fur­ther sti­fles inno­va­tion in ser­vices and busi­ness models.

Detailed report­ing, includ­ing monthly play counts: Pro­vid­ing addi­tional reports unre­lated to pay­ment, includ­ing over­all mar­ket share of sales in var­i­ous cat­e­gories. […] The labels effec­tively offload their busi­ness analy­sis (and the cost of such analy­sis) onto the music services.

Data nor­mal­iza­tion: With­out stan­dard nam­ing con­ven­tions and canon­i­cal meth­ods for ref­er­enc­ing artist, tracks and albums, the ser­vices are left to try and match artist, track, album names pro­vided by one label with those of another. It’s incred­i­bly inef­fi­cient, as each ser­vice must undergo this process separately.

Pub­lish­ing deals: Once you’ve signed deals with the labels, you then need to cut deals with the pub­lish­ers. […] Although you may have the rights to stream from labels, you some­time can’t get the rights to stream from the pub­lisher, or worse, even find the publisher.

Most favored nation: This is a deal term demanded by every major label that ensures the best terms pro­vided to another label are avail­able to it as well. This greatly con­stricts the abil­ity to work out unique con­trac­tual terms and fur­ther lim­its busi­ness models.

Non-disclosure: This is the main rea­son music ser­vices, not the labels, have been get­ting heat from the artist com­mu­nity. Music ser­vices can’t defend against accu­sa­tions about low artist pay­ments because they pay the labels who don’t dis­close what they’re pay­ing to the artists.

It’s worth not­ing that while Michael Robert­son is a trust­wor­thy writer and likely to have access to peo­ple who know this infor­ma­tion (if this isn’t first-hand infor­ma­tion any­way), he’s also likely to har­bour some resent­ment toward record labels from his busi­ness ven­tures. Still, even with­out a solid ref­er­ence I felt that this was too inter­est­ing to just pass up.

Years ago (and still, for cer­tain prod­ucts) con­sumers decried the idea of planned prod­uct obso­les­cence in indus­trial design: the inten­tional engi­neer­ing of prod­ucts to have a lim­ited use­ful life, such as with prod­ucts pro­duced with sealed-in bat­ter­ies or fridges that will only func­tion for seven years.

In recent years, how­ever, the need for planned obso­les­cence has moved from the sup­ply side to the demand side, with con­sumers them­selves requir­ing that their gad­gets don’t last so long that they become a bur­den: it’s desired func­tional obso­les­cence. Writ­ing about the influ­ence this has on our con­sump­tion habits, Rob Walker takes an inter­est­ing look at trends in prod­uct obso­les­cence and the rise of func­tional obso­les­cence as a demand-side phe­nom­ena rather than a supply-side one.

Con­sider that most ubiq­ui­tous gad­get, the mobile phone. […] The typ­i­cal Amer­i­can gets a new one every 18 months. […] The prob­lem, if that’s the right word for it, is that new devices per­form more func­tions, faster—and peo­ple, as a result, want them. […] The light-speed inno­va­tions in con­sumer elec­tron­ics have turned many of us into ser­ial replac­ers. A dealer in vin­tage home-entertainment equip­ment recently con­vinced me that it used to be pos­si­ble to buy a top-notch stereo sys­tem that really would func­tion admirably for decades. Imag­ine, by con­trast, that tomor­row some com­pany unveiled a cell phone guar­an­teed to last for 20 years. Who would gen­uinely want it? It’s not our devices that wear thin, it’s our patience with them.

The very real prob­lem of elec­tronic waste makes peo­ple like me hes­i­tate to replace good-working-order pos­ses­sions. Yet at the same time, we like to stay cur­rent with new tech­no­log­i­cal inno­va­tions. So rather than pro­vide evi­dence of some cyn­i­cal cor­po­rate strat­egy, our gad­gets’ minor mal­func­tions or dis­ap­point­ing fea­tures or unac­cept­ably slow speeds largely pro­vide an excuse to replace them—with a lighter lap­top, a slim­mer tablet, a clearer e-book reader. Obso­les­cence isn’t some­thing com­pa­nies are forc­ing on us. It’s progress, and it’s some­thing we pretty much demand. As usual, the mar­ket gives us exactly what we want.

I don’t take infomer­cials very seri­ously, mainly due to how hilar­i­ous and absurd they are. How­ever I’ve now been won over and can see their poten­tial for cer­tain product–market com­bi­na­tions. How did this mirac­u­lous change come about? Through a sur­pris­ingly enjoy­able inter­view between Andrew Warner and the mas­ter of the infomer­cial, Tim Hawthorne.

From his many years of expe­ri­ence (he cre­ated the fourth ever infomer­cial, devel­op­ing over 300 since then; has worked with some well-respected com­pa­nies such as Apple, Nikon, 3M and Braun; and is respon­si­ble for about a bil­lion dol­lars in client sales), Hawthorne talks exten­sively and insight­fuly on the many infomer­cial sales tech­niques that his data show are the most per­sua­sive. Two items that I par­tic­u­larly liked:

The most per­sua­sive deal types:

Buy one get one free, or get the sec­ond one at half price. So you’re get­ting an imme­di­ate dis­count. Buy one and get a sec­ond one super size, so you’re actu­ally dou­bling or tripling the order. Buy one and the sec­ond is actu­ally going to be dou­ble the size. Drop a pay­ment. Let’s say that your offer is three pay­ments of $19.95, that’s your ini­tial offer. But wait, if you call now, if you order now, we’ll actu­ally make one pay­ment for you. So it’s only two pay­ments of $19.95. So that’s drop a payment. […]

I think one of the most pow­er­ful bonuses or pre­mi­ums that you can offer is free ship­ping. A lot of peo­ple don’t under­stand the power of this. For some rea­son, if I’m going to pay $99.95 and there’s an addi­tional $9.95 or $14.95 or $19.95 for ship­ping, that addi­tional amount which is very impor­tant to many ven­dors, if you can sac­ri­fice that, it has an amaz­ing impact on people.

Words and phrases that trig­ger action:

“Free” is still, I think, and will always be con­sid­ered the most pow­er­ful word in sell­ing. After that we would prob­a­bly think of words such as now, you or your, easy, eas­ily, guar­an­tee, break-through, rev­o­lu­tion­ary, fast, quick, instant, magic, new, spe­cial, exclu­sive, lim­ited time, risk free, only, save, money back, money back guar­an­tee, call now, and in terms of a clas­sic phrase, “but wait, there’s more”.

Every­body kinds of kicks around that par­tic­u­lar phrase and it’s used often. One of the rea­sons it’s used so often is that it’s so effective.

When nego­ti­at­ing ensure that you make the first offer and make sure it’s an aggres­sive one: this is almost always the opti­mal nego­ti­a­tion strat­egy. That’s the con­clu­sion from a study look­ing at nego­ti­a­tion tac­tics and the anchor­ing effect (from the same researchers that dis­cov­ered the opti­mal start­ing prices for nego­ti­a­tions and auc­tions).

One of the researchers gives a good overview of the study’s find­ings in an arti­cle for Har­vard Busi­ness School’s Work­ing Knowl­edge that pro­vides suc­cinct nego­ti­a­tion tac­tics and rea­sons for why you should make the first offer. Top­iccs include: when you should not make the first offer, how to counter first offers, how to con­struct a reasonable—yet aggressive—offer, how to pro­tect your­self from the effects of anchor­ing, and more.

Some key points worth con­sid­er­ing (in no par­tic­u­lar order):

We might expect experts to be immune to the anchor­ing effect. Real estate agents, for exam­ple, should be able to resist the anchor­ing effects of a property’s list price because of their pre­sumed skill at esti­mat­ing prop­erty val­ues. Test­ing this the­ory, [it is clear that] anchors affect the judg­ment of even those who think they are immune to such influ­ence. But why?

Every item under nego­ti­a­tion (whether it’s a com­pany or a car) has both pos­i­tive and neg­a­tive qualities—qualities that sug­gest a higher price and qual­i­ties that sug­gest a lower price. High anchors selec­tively direct our atten­tion toward an item’s pos­i­tive attrib­utes; low anchors direct our atten­tion to its flaws. […]

The prob­a­bil­ity of mak­ing a first offer is related to one’s con­fi­dence and sense of con­trol at the bar­gain­ing table. Those who lack power, either due to a negotiation’s struc­ture or a lack of avail­able alter­na­tives, are less inclined to make a first offer. Power and con­fi­dence result in bet­ter out­comes because they lead nego­tia­tors to make the first offer. In addi­tion, the amount of the first offer affects the out­come, with more aggres­sive or extreme first offers lead­ing to a bet­ter out­come for the per­son who made the offer. Ini­tial offers bet­ter pre­dict final set­tle­ment prices than sub­se­quent con­ces­sion­ary behav­iors do.

There is one sit­u­a­tion in which mak­ing the first offer is not to your advan­tage: when the other side has much more infor­ma­tion than you do about the item to be nego­ti­ated or about the rel­e­vant mar­ket or industry. […]

How extreme should your first offer be? My own research sug­gests that first offers should be quite aggres­sive but not absurdly so. Many nego­tia­tors fear that an aggres­sive first offer will scare or annoy the other side and per­haps even cause him to walk away in dis­gust. How­ever, research shows that this fear is typ­i­cally exag­ger­ated. In fact, most nego­tia­tors make first offers that are not aggres­sive enough.