A few weeks ago I was reviewing the contents of the Venturelab workshop Effectuation by professor Saras Sarasvathy, to see if I could apply the effectual principles for personal development.

In this process I got connected via Twitter with Thomas Blekman, a part-time lecturer in Corporate Effectuation and Strategy at Rotterdam School of Management Erasmus University Rotterdam, who recently published the book Corporate Effectuation.

In the article below I will write down my thoughts and experiences while reading the book. I hope it will provide a helpful overview, and invites you to read the book Corporate Effectuation (and apply its principles  in everyday life).

Effectuation ?

If you are not familiar with the term Effectuation, a fair question certainly is “What is Effectuation ?”. On the Effectuation website you can read the following definition:

“Effectuation is a logic used by expert entrepreneurs to solve problems in highly uncertain market environments. Entrepreneurs can learn to think and act effectually, thereby increasing their ability to create successful ventures.”

Five Principles of Effectuation

Effectuation consists of five principles, which are extensively explained in the the first chapters of the book.  The five principles of effectuation are:

1. Bird-in-hand principle:  Start with Who you are, What you know and Whom you know;
2. Affordable loss principle:  Invest what you can afford to lose;
3. Crazy Quilt principle:  Build a network of self-selected stakeholders;
4. Lemonde principle:  Embrace and leverage surprises (every day);
5. Pilot-in-the-plane principle:  The future comes from what people do.

Some time ago I reviewed The One Minute Manager — (Blanchard & Johnson, 1983) and The One Minute Sales Person  – (Johnson & Wilson, 1984). In these books I particularly liked the One Minute Manager’s- and the One Minute $alesperon’s Game Plan. The effectuation game plan is summarized below, while a larger version can be downloaded as long a s you share it with others.

If you are interested in some more background reading on effectuation, than the paper Causation and Effectuation: Toward a Theoretical Shift From Economic Inevitability to Entrepreneurial Contingency, is highly recommended.

The first two chapters of the book introduce the theoretical framework- and the essence of effectuation. The other seven chapters link effectuation to various other scientific approaches and like business modelling, reframing or the granularity of innovation. I will cover six of those chapters in the sections below.

High Performance Organization and Corporate Effectuation

This is an highly interesting chapter because in practice you can see process optimizations (focussed on improving efficiency and productivity) while on the other hand companies would like to innovate. At first sight it seems like a tension area, however with applying effectuation and its principles it might

Thomas Blekman uses Essent as an excellent practical example to illustrate that innovation and a focus on cost reduction and process optimization can go hand in hand (if effectuation is used). Effectuation empowers the explorative power of the organization, which perfectly fits the long term strategy of adding value to propositions.

Furthermore interesting to see three different levels of High Performance Organization(s), in line with sustainable change leadership types (Rowland & Higgs, 2008).

Business Modeling and Corporate Effectuation

When I got in touch with Thomas Blekman, one of my main interests was the relation of Corporate Effectuation and Business Modeling. But what is a business model ? According Osterwalder’s research a definition is:

“A business model describes the rational of how an organization creates, delivers and captures value“

A little more than a year ago I met Osterwalder and his book team, after which I wrote a preview of the book Business Model Generation. The essence of the book is the business model canvas, which consists of 9 building blocks.

Camilla van den Boom from Business Models Inc. describes in this chapter the use of this canvas as flexbile strategic business planning- or change management tool. She uses the case of the university hospital Maastricht, which made it highly interesting to read. Further more each of the effectual principles is applied during the process of developing a new (set of) business model(s) for the university hospital.

Reframing and Corporate Effectuation

Before reading Corporate Effectuation I didn’t knew Reframing.

On the KVD Reframing, a design and innovation consultancy firm, founded bij Ir. Gijs Ockeloen and professor Ir. Matthijs van Dijk, you can read a definition of the term reframing:

“Reframing is a design method aimed at understanding and predicting how people will interact with future products and services. Companies, instututes or any other other organisation may use the method to open the door towards innovation opportunities while bringing the future under control. Reframing adresses human behaviour rather than technology. Reframing offers a new way of looking at the relations between people and products and a practical tool to steer innovation.”

When you read the definition carefully it consists of a few highly interesting aspects (highlighted in bold). The focus on human behavior and the relations between people and products is an interesting approach. The focus on future products and services reminds me a little of scenario planning and future planning concepts I have heard during the vision on the future symposium some time ago.The picture above describes the reframing process, with the starting point in a current set of products (or services). Decomposing the product, man-product-interactions and the contextual aspects in the first phase. And designing the new product or service in 8 steps over the context, interaction and product levels.

I will certainly dive a little more in this framework !

Granularity of Innovation and Corporate Effectuation

Back in 2008 I attended the fith European Masterclass on Corporate Entrepeneurship & Open Innovation with Henry Chesbrough & Kenneth Morse together with a lot of people from Philips Research. During this masterclass I’ve met Corina Kuiper as one of the involved experts.

Therefore it is really cool to read her chapter in the corporate effectuation book about the granularity of innovation and the innovation portfolio management within Philips.

“Granularity of innovation is the degree of differentiation among the different types of innovation.”  (p.136, 137)

Disruptiveness to the customer determines how to innovate. Philips has developed a 4×4 innovation martix, with disruptiveness and market life cycle on both axis.  Furthermore you can see that the left blue half of the matrix is aimed at existing (more mature) product categories, while the orange right half is aimed at new categories.

On the diagonal you can futhermore see numbered green dots, that combine the different stages of market life cycle and disruptivess. In fact you move from radical innovations in the upper right corner to incremental innovations in the bottom left corner.

Inspired by a book  The Living Company (Arie de Geus, 1997) the numbered green dots can be compared with different maturity stages of humans as well:

1. Baby
2. Adolescent
3. Adult
4. Senior

Almost every company has these four types of (innovation) projects, where probably most of the projects are in the adult stage. A baby is an radical innovation project for the long term in a very early stage. Management teams foster both adults and babies.

According to research large firms have problems with managing adolecents, because there are tensions with for example the current business model, current supply chains or first customers.

Philips uses the innovation matrix (and specific area’s like you can see in the picture of the book above) to visualize the different types of innovation (and the resulting specific approach). Boxed budgets, incubators, balanced scorecards for ventures and the stage-gated Bell Mason Group framework for new business creation are specific tools that support the various types of innovations.

Additional recommended reading is the slidedeck The flavors in corporate innovation by Fred van Ommen and Corina Kuiper for the Corporate Venturing Conference 2011.

Personal Development and Corporate Effectuation

Effectuation in a personal development setting, was the primary driver to review the scientific effectual framework and got me connected with Thomas Blekman.

Michael Faschingbauer has written the book “Effectuation, Wie erfolgreiche Unternehmer denken, entscheiden und handlen.”  (Effectuation, How successful entrepreneurs think, decide and act.) It has been the management book of the year in 2010.

Faschingbauer provides a few very helpfull tips, complemented with tips from Thomas Blekman. Despite the highly interesting tips, I will try to get my hands on the book of Faschingbauer, and go a few steps deeper into the personal development aspects of effectuation.

Orchestration of Corporate Effectuation

Orchestration of corporate effectuation is the final chapter of the book, which focuses on integrating a Corporate Effectuation mindset into a company or how can Corporate Effectuation become part of an organization’s DNA. Thomas Blekman and Henri Mennens provide an overview  of relevant organizational “parts” where Corporate Effectuation can make the difference:

1. Support of top management;
2. Organizational structures;
3. IT Systems;
4. People development;
5. Other HR processes;
6. Other corporate processes;
7. Integration in operational processes;

While it really depends on the organization which of the “parts” are applicable and which set of the organizational parts has the highest impact.

I was interested in the combination of IT systems and the Corporate Effectuation mindset. IT systems can provide the latest information, latest views, latest research or even ideas that help employees with driving innovation and absorbing new knowledge. Furthermore you could think about the use of knowledge management platforms combining the brain-power in a company, or the use of business intelligence solutions that help to make informed decisions.

Thomas Blekman and Henri Mennens provide an approach to integrate the Corporate Effectuation mindset into a company. The Corporate Effectuation Business Program is a seven-step process that combines different tools that are covered before in the book like business modelling and reframing.

Concluding thoughts and wrap-up

I got connected with Thomas Blekman via social technology (thank you Charlene Li) while in our meetup he explained his background and drivers to write the book !

The Corporate Effectuation book first builds the foundation with effectual principles in the first two chapters and connects with other scientific frameworks and management theories in the other chapters.

I really liked this positioning between academic research/science and everyday business practice. However that really represents the personality of Thomas Blekman:

“In Thomas’ opinion scietific knowledge is only relevant if it has practical value.”

Corporate Effectuation consists of a bulk load of highly interesting examples that help building understanding of the Effectual principles in various settings and situations. The look and feel of the book shows similarities with the Business Model Generation handbook (Osterwalder et al. 2010).

Overall it is fun to read and remark the post-it on the front cover: “Irritant goed boek !” That is what the Corporate Effectuation book is, a must read for every entrepreneur, manager or professional. Corporate Effectuation is available in Dutch and English.

About Thomas Blekman

Thomas Blekman is a part-time lecturer in Corporate Effectuation and Strategy at Rotterdam School of Management Erasmus University Rotterdam. He has recently finished his new book Corporate Effectuation. Corporate Effectuation is the very first work in The Netherlands about this new and very successful approach. Thomas Blekman is partner of De Beukelaar Group, dean of Corsendonk College in Belgium. In other words, he is with one foot firmly in daily practice, while footing the other on solid science; in short, the living proof of Effectuation! Thomas has extensive experience in the corporate field and is specialized in consulting and facilitating firms becoming more innovative and entrepreneurial. In Thomas’ opinion scietific knowledge is only relevant if it has practical value.

Stress, the University of Twente’s largest study association, organized an awesome guest-lecture with Steve van Wyk, CIO @ ING Bank. The theme of the lecture is  ”Challenges @ ING” and one of the topics is the merger of the Postbank and ING, the challenges that came with it and how they were overcome.

In this article I will provide some of the interesting topics from the lecture, and for those who haven’t attended this lecture you really missed a great opportunity to have a detailed look at the technology-side of ING.

Picture used with permission of Stress, study association

Who is Steve Van Wyk and why working for ING ?

Steve van Wyk briefly introduces himself and his family. He has Dutch roots, worked 11 years for Morgan Stanley in the USA and is now at ING for about 5 years now.

Remarkable was the fact that Steve van Wyk was at work in the Twin Towers at 9-11, because Morgan Stanley was at the second floor of tower two ! That day has made tremendous impact, and he will never forget how it required leadership. Not only to get the co-workers safe out of the building, but also a leader in terms of technology (off-load the data to other data centers and get the bank back online as soon as possible).

Honestly I think this is an event that shaped and polished someone as a person. Therefore I’m not surprised by his mantra that there are three important things in professional life:

1. People;
2. People;
3. and people !!

Why ING ?

Steve van Wyk shares three reasons why he loves working for ING:

1. Great entrepreneurial and bright people with lots of passion and corporate responsibility;
2. ING is an excellent brand and company, with exceptional distribution. Remark for example that ING developed the direct online (banking) model !
3. The ability to make a difference, personally as well as inspirational for the surrounding team Steve van Wyk works with on a daily basis.

Later in the Q&A session Steve van Wyk would share that he is most proud of the cultural change within his team and the whole organization, to make a difference and be aware of that ability every day.

]]> http://www.remo-knops.com/2576/steve-van-wyk-cio-ing-bank-building-the-preferred-bank-with-technology/feed/ 0 http://www.remo-knops.com/2201/google-more-than-just-a-search-engine-but-not-the-only-motor-of-economic-growth/ http://www.remo-knops.com/2201/google-more-than-just-a-search-engine-but-not-the-only-motor-of-economic-growth/#comments Tue, 01 Jun 2010 13:00:45 +0000 Remo Knops http://www.remo-knops.com/?p=2201

A few days ago my attention was caught by a message communicated via the verified Google Twitter account, that introduces the role of Google as an engine of economic growth: 

“We’re not just a search engine, we’re an engine of economic growth. Our U.S. economic impact in 2009 was $54 billion“ 

Introduction

On the official Google Blog you can read a related article, posted by Claire Hughes Johnson, Vice President, Global Online Sales @ Google. 

“This week is National Small Business Week, and Ross will be with me on Capitol Hill in Washington today to share his story and help unveil something that means a tremendous amount to me: a new report detailing, for the first time ever, Google’s economic impact in all 50 states.” 

Let me be clear that the financial number of $54 billion is pretty impressive, but still I find the first time ever part remarkable. I’m pretty sure that the quantification on a state level is the first time ever in a public available document. Google is a public traded company, so you should be able to find estimates of the economic impact in the annual reports. 

But what does the financial number of $54 billion, represent? If you download the Google’s Economic Impact – United States, 2009 – report, you can read that: 

“In the pages that follow, we describe Google’s economic impact across the U.S. This impact is reflected by the number of advertisers and website publishers in every state, the non–profits we provide with free advertising, and the real–life stories of small businesses that have benefited from using Google.” (Google’s Economic Impact, 2009, p.3) 

What I really like about the report, is that start-ups, entrepreneurs and small business are included in this report. I recall the statement of Professor Pieper on the title slide of the opening speech presentation of the vision on the future symposium: “Value creation, nothing else matters.” 

This task of value creation is perfectly suited for the entrepreneurs and intrapreneurs, since entrepreneurship is an engine of the economy especially in the current hard economic times. Personally I think this is a highly interesting area to look into more detail.

Google Search, AdWords, AdSense and Google Grants

Google is well known for its search engine activities, but with regard to the economic impact let’s have a look at the business side where the money flows! In the the Google’s Economic Impact – United States, 2009 – report, you can read that: 

“Aside from being a well-known search engine, Google is also a successful advertising company. We make most of our revenue from the ads shown next to our search results, on our other websites and on the websites of our partners. Through these ad programs, we help many others make a living too. This booklet presents a conservative estimate of Google’s economic impact on businesses across the U.S. based on three core parts of our business: Google Search and AdWords, AdSense and Google Grants.” (Google’s Economic Impact, 2009, p.4) 

As you can see all three advertising related core parts of the Google business-side are closely tied to Google Search, which is the key resource (control point) in the Google Business Model. 

Google Adwords

The first advertising pillar the generates Google revenue is Google Adwords, that shows ads next to the search results based on the keywords that you have entered in the search field. In other words these are more or less “targeted” advertisements. 

Google AdSense

The second advertising pillar that contributes to Googles Economic Impact is Google AdSense. On the Google AdSense product page you can read the following description: 

“Google AdSense is a free program that enables website publishers of all sizes to display relevant Google ads and earn.” 

Almost everyone I know in online publishing is using Google AdSense to some extent, since Google AdSense can place advertisements in: (1) content, (2) mobile, (3) search, and (4) feeds. In fact it is a mutual relationship, since Google needs websites and online publishers to sell advertisements, while online publishers can use Google AdSense at no costs, and start earning money. 

The most interesting part of Google AdSense is the multiple channel characteristic, each with different financial business (model) parameters. 

Google Grants

The third advertising pillar from that contributes to the Google revenue is Google Grants. For me personally this was a pillar I don’t know that well, however if you look at the description on the Google Grants website, it is nothing more than Google AdWords for non-profit organizations: 

“Google Grants is a unique in-kind donation program awarding free AdWords advertising to select charitable organizations. We support organizations sharing our philosophy of community service to help the world in areas such as science and technology, education, global public health, the environment, youth advocacy, and the arts.” 

Calculations of Google US Economic Impact

In addition the financial number of $54 billion as the total of Google’s US Economic Impact in 2009, it is interesting to have a look at the underlying calculations. 

You can find a pretty detailed description of the calculations in the Google’s Economic Impact – United States, 2009 – report, as shown in the picture above. (Google’s Economic Impact, 2009, p.6-7) Furthermore you can find a video of Claire Hughes Johnson, Vice President, Global Online Sales @ Google and Google Chief Economist, Hal Varian, who provides additional background information on the underlying calculations: 

httpv://www.youtube.com/watch?v=hiGn8HPGrMM 

When I first watched the video, I heard the word estimates a few times, which raised some skepticism. Of course I do understand that it is  hard to make the calculations with a mathematical accuracy on two digits behind the comma, that are 110% reflecting the real world situation. However in  the Google’s Economic Impact – United States, 2009 – report (p. 7) you can read: 

“This is a first attempt to estimate the economic impact of Google’s core search and advertising business. In search and advertising, we’ve derived a conservative estimate of the impact of our tools on businesses, website publishers and non–profits, but we’ve left out such estimates as the cost savings for consumers now able to find the information they need more easily than before. We also have not estimated the economic impact our employees provide, or that of other major products like Google Maps and YouTube. So while we’re reasonably confident in our estimates, consider them a lower bound on Google’s true economic impact.” 

As you can read in the “what is not included” section  (Google’s Economic Impact, 2009, p.7) there are some limitations and constraints. For example the is purely focussed on the core search and advertising businesses. YouTube is excluded despite it has become the second largest search engine online, is another example. 

“For more information about our methodology and to download the two cited studies, please visit: http://www.google.com/economicimpact/methodology.html“ 

Final thoughts and overall conclusion

At first I think the Google’s Economic Impact – United States, 2009 – report is a highly interesting one, especially since there are some real-life examples included from each of the 50 states. I think both this report and the total economic impact, represent quite an amount of entrepreneurship.The report furthermore shows some core aspects of the Google business (model) side, where the search technology is an enabler for the advertising revenue model. 

However there are certainly also constraints and limitations in this report about Google’s Economic Impact. You could also phrase it differently: the report has a clear focus on search and advertising, and it is a first attempt with recommendations for further research. It would be interesting to do some math and compare the numbers from the Google’s Economic Impact 2009 report, with the Google Annual Report 2009. 

Last year I was fortunate to visit Microsoft TechNet_Live, an event for IT  Professionals and Technical Decision Makers, that started with a keynote “Join the New Efficiency” from Microsoft CEO Steve Ballmer. If you have a look at section 1. and the included picture, you can see that Steve Ballmer is performing a similar exercise with the slide “IT More Critical Than Ever”: 

“Steve Ballmer describes the impact of the Microsoft Ecosystem in the Netherlands in terms of hard numbers:  for example jobs, revenues, new business opportunities and even as percentage of the  GDP.” 

It is not only Google, Microsoft or Apple who have a significant economic impact, but I think you can extend this reasoning and generalize that every (major) company has strategically build ecosystem that directly or indirectly includes other “surrounding” companies in the ecosystem. 

Google AdMob in Google’s Economic Impact 2010 report ?

Do you remember the article on the Official Google Blog, in which Google closed the acquisition of AdMob. Mobile Advertising has become a central part of the Google Advertising business with the AdMob acquisition. 

Combined with the growing global market-share of the open source Google Android mobile operating system, I’m really curious to find out what percentage of next year’s Google’s Economic Impact is generated from Mobile and Mobile advertising. …. and with these last thoughts I would like to finalize this article ! 

I was fortunate being invited to attend the highly succesful first edition of the Android Experience, an event that adresses the Android ecosystem from different perspectives.

In this article I will briefly summarize some of the highlights of Android Experience 2010 @ the Amsterdam Convention Factory.

On the MobilityMinded website I have written an extensive event report, inline with the following structure:

1. The importance of openness for innovation – Vincent Everts, trendwatcher;
2. The mobile future is bright and open, the impact of Android – Ed Achterberg, founder, CEO  and senior research analyst at Telecompaper;
3. The power of Android:  User experience is key – Mark Moons, Regional Director Benelux HTC;
4. Developing Apps: Doing business making money – Raimo van der Klein, Chief Exectutive Officer of Layar;
5. Banking with apps – David-Jan Janse, Manager of Rabo Mobile, Rabobank Netherlands;

The highlights of Android Experience 2010, in my personal opinion, are marked in itallic in the list structure above.

The mobile future is bright and open, the impact of Android – Ed Achterberg, founder, CEO  and senior research analyst at Telecompaper;

I really liked the objective scientific approach of Ed Achterberg, founder, CEO  and senior research analyst at Telecompaper. While some very interesting facts about the competitive mobile landscape were presented, Ed Achterberg also made some points that really make you think.

• The misuse of the term personal computer for a desktop computer at home, while you take your smartphone with you all the time. A smartphone, which has taken over a lot of computer capabilities, is probably the most personal electronic device. Also the impact of other devices, like the netbook, e-book readers and devices like the Apple iPad will change the landscape;
• Ed Achterberg presented a graph with the indexed results of the simplicity of device configuration at first use. Honestly I didn’t expect this measurements. However with the average age of the Dutch society rising, fast and easy configuration for the Joe Average end-user becomes critical, with increase of complexity among mobile electronic devices;
• The Android operating system has got a very explosive growth curve with rapid development cycles. From the launch of the HTC Dream, which was the first Android device several versions of the Android OS have been released, 1.5 , 1.6 , 2.0 , 2.1 and a variety of handset manufacturer customizations. The open source nature has driven the growth of the platform, but it also fragments to Android OS at a fast rate. An interesting question is if Google should step up and close the open source model a little. Ed Achterberg suggests that a more uniform quality and user exprience could help the Android OS.

Especially about this last bullet I had some discussion about, among mobile friends and on Twitter with for example JeanPaul Horn (Planet Android / iPhoneclub) and Arnoud Wokke (Tweakers). I’m also curious if and how Google tries to manage the Android Marketplace with an explosive growth of developed applications (indexing and categorizing applications vs. sending in new applications) ?

The power of Android:  User experience is key – Mark Moons, Regional Director Benelux HTC;

Mark Moons, Regional Director Benelux HTC, builds further on the market figures from the previous session of Ed Achterberg by sharing the HTC marketshares and the position of the Android OS in the Dutch mobile market.

A significant part of the session is about the Android ecosystem. Mark Moons explains the necessity of a healthy ecosystem in which the different players challenge each other and drive true innocation. In this light both open- and closed ecosystem are addressed, as well as the opportunity to educate end-users and create a competitive advantage for retailers.

The main conclusion is that an operating system with a healty ecosystem and an excellent user experience will be sustainable on the long term. According to Mark Moons, “Android will become the second operating system in the Netherlands within two years“.

Picture used with permission of Daphne Channa Horn, Independent Photographer

Developing Apps: Doing business making money – Raimo van der Klein, Chief Exectutive Officer of Layar;

Raimo van der Klein, Chief Exectutive Officer of Layar, is the fourth speaker on the Android Experience, and shares the challenges, opportunities and reconfigurations of business model and strategy in time of Layar.

Layar now aimes at becoming a platform (in contrast with the initial content focus) on top of which other developers can build their services, and in which Layar more or less takes care of a stable platform/environment, the distribution, the installed userbase and pre-installation on Android smartphones, for example the Samsung Galaxy S.

Raimo van der Klein explains the different business models and some specific business details in an interview with Vincent Everts (in Dutch and remark that Android World = Android Experience, Ed Achterberg is from Telecompaper not from Telecomworld)

THE FACTS

• Layar had 3-5 business models from the start about a year ago and now;
• Layar was one of five concepts the Layar team planned to do, however now there is fulltime focus on Layar only;
• 32 people are working on Layar;
• Layar is funded (with venture capital) for E2.5 milion euro;
• 2700 Layar developers worldwide;
• 450 Layars published already and 1700 Layars in development;

THE BUSINESS MODELS

1. Content Layars, payment for hosting;
2. Opening the platform, payment when content is published, for example with a monthly fee;
3. Analytics, premium payments for advanced analytics;
4. Currently Layar focusses on building and expanding the brand, distribution and things like the pre-installation deal with Samsung;

AND ALSO

• Games and tourists guides will become available in Layar in the near future (remark business model 2 in the list above);
• Currently Layar has more end-users on Android devices than on the Apple iPhone devices;
• The release of every Android device caused some change in the Layar code. Upcoming year about 90 handsets, and 2 people working fulltime on a stable Layar experience on all these devices;
• Looking at a collaboration with Nokia (Symbian, Meamo). Nokia is stil the largest handset manufacturer that ships 400 milion handset per year;
• Nokia plays the retail game very strong and pushing the distribution among stores;

Raimo van der Klein illustrates the Layar platform startegy with a new venture: TAB worldmedia, who connect augmented reality with outdoor advertising. I was fortunate to talk with Remco Vroom and Johannes la Poutre in the late afternoon, which was highly interesting.

At first I’m glad that Raimo van der Klein is willing to share these details on a business model level. It is very interesting, and these facts simply illustrate that business model innovation and the constant search for new strategic opportunities and exapnding competitive advantage are a necessity for every entrepreneur.

I’m curious if the Layar team used a business model design tool, like the business model canvas proposed by business model expert Alexander Osterwalder.

Final thoughts and wrap-up

I would like to compliment everyone who has been involved with the organization of the first edition of the Android Experience.  The great industrial atmosphere of the Amsterdam Convention Factory was excellent for a technology event like this.

In addition to the excellent presentations above, Android Experience was also about meeting old friends (developers, press, bloggers, handset manufacturers, distributors) and meeting new friends. During and after the Planet Android App Challenge 2010, I had a few drinks with Patrick de Laive of the Next Web. A great guy with an exceptional entrepreneurial drive.

Other examples of this creativity and entrepreneurship are my discussion with the guys from TAB Worldmedia, or the described presentation of Raimo van der Klein, Chief Exectutive Officer of Layar, and Koen Krijns of Hardware.info with the barcode scanning application for Android.

The conclusion is simple, first edition of the Android Experience was a huge success !!

Dynamic Content Gallery Picture used with permission of Daphne Channa Horn, Independent Photographer

Perhaps some of your remember the acquisition propositions of Microsoft to Yahoo! earlier this year, which in the end didn’t result in Microsoft buying Yahoo!. However yesterday the news spread very fast on the web that both companies announced a long-term agreement in the Web Search segment.

“Yahoo! and Microsoft announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.”

Analysis key terms of the agreement

But even the simple term version in the summary made me think about the advantages and impact the agreement has for both Yahoo! and Microsoft. Dueto my background in and interests in technology trends I wanted to have a closer look at the key terms below:

@1.   “Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms;”

Remarkable is the long-term character of the agreement, especially in the fast moving and hard to predict digital era we currently live in. However the agreement might be a good strategic move, in order to continue development and expand marketshare for the Microsoft Bing decision engine.

@2.   “Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.”

This key term only supports the expansion of Microsoft Bing, since it will power the search platform on Yahoo! websites. A questionmark however is if Microsoft will also have access to the Yahoo! search data, which is collectd by Yahoo! until now.

@3.   “Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.”

It sounds like this key term is really aimed at combining complementary skill sets, or to reduce Microsoft’s sales force for premium search advertisers.

@4.   “Each company will maintain its own separate display advertising business and sales force.”

Thus the agreement is only for the search-segment of both the companies, while other parts like the Instant Messaging platforms and the Web Properties, etc. will not be part of this agreement. From a Microsoft perspective, it looks like this deal is fully aimed at brining Micrsoft Bing to the next level. What intrigues me is how the close collaboration agreement will be shaped in practice? Will the Microsft Yahoo search become a separate business unit under the Microsoft Bing “umbrella” ?

@5.   “Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.”

This one is very interesting, since I believe that both companies will invest in continuous development of the user experience as well as the search experience. This key term triggers a question again: What will happen to the Intellectual Property (IP) that is a result of a co-creation process, which required both parties’ knowledge to develop / or create ?

@6.   “Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.

• Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
• Yahoo! will continue to syndicate its existing search affiliate partnerships.”

Well here come some financials in play. Microsoft (Bing) will pay Yahoo! compensation for the market expansion which seems to be fair for both companies. The first bullet however only covers the first 5 years of the agreement, while the exclusive license agreement on Yahoo!s search technologies is bought for a period of 10 years! Honestly in the fast moving internet era, these periods seem to be long but might be the result of “slow moving giants” compared to the flexible start-up companies.

@7.   “Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.”

Looking a the compensation-term of the agreement  above and the fact that Microsoft will guarantee Yahoo! revenue per search, both companies but foremost Microsoft have really faith in the success of Microsoft Bing, which is more than a Google search alternative.

@8.   “At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.”

Nice to write down the estimates, but which prediction and estimation models are used to calculate these numbers. What is the balance between the financial win for Microsoft and what is the financial win for Yahoo!?  However I do think that this merger / acquisition can result in highe efficiency improvements by combining the best of both worlds in search and advertising. If the numbers and calculations we’re correct we will see in time.

@9.   “The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.”

Consumer privacy is certainly a good point, but will this key term not slow down the companies since they seem te rely both on certain types of information for additional development of their services.

Thoughts and wrap-up 

Todd Bishop -co-founder and managing editor of TechFlash- has written a series of articles on the TechFlash website about this deal from a variety of perspectives in the following highly recommended articles: “What people are saying about Microsoft’s Yahoo partnership” and “Analysts, investors react to Microsoft’s Yahoo partnership” and “Audio: Ballmer and Bartz discuss partnership, Google, and f-bombs“

“While Microsoft gets the larger market share to improve Bing’s search relevance and advertising volume, Yahoo still gets 88 percent of the revenue from ads on Yahoo search, without the R&D and operating expenses that it would normally encounter. That frees up Yahoo to concentrate on its online media business, Ballmer said.”

But how can we relate this agreement back to the failed acquisition in February this year, and what was te initial goal of the Yahoo! acquisition at that point in time ? Was it also aimed at buying the search technologies of Yahoo! in order to improve Microsoft Bing and leverage the Yahoo! network to collect data and expand in advertising as well ?

All interesting questions, which will require some additional research. However what most strikes me in this deal is the long-term character and trust both companies have in this agreement and the partnership. I would like to know when you really can measure the impact of this agreement, both in financial- and in operational and efficiency terms as well.

In the article I explicitely didn’t talk about Google -another industry giant an leader in the search segment-, but I’m also really curious on their strategic reaction as well. And:

• Is the agreement between Microsoft and Yahoo! a clever move to dismantle Yahoo! piece by piece or is it a better deal for Yahoo! so they can really develop ventures in new or related industries ?
• Will the two industry giants be able to be more flexible and move faster due to this agreement, like a early start-up ?
• Which management challenges will the (partly) merger of Yahoo! and Microsoft (Bing) bring ?
• What impact has this acquisition on the innovative power of Yahoo! and Microsoft ?
• What is the impact on the business models of Yahoo! and Microsoft ?

Concluding

The current agreement betweent Microsoft and Yahoo! is a very interesting business case, of which I will follow the developments. I hope in time some questions will be answered and perhaps some new challenges will come on their path. The long-term character of the agreement and the open formulation of the key terms, makes it even more interesting to follow. Please let me know what you think of this agreement, and you might have some thoughts about the proposed questions as well.

Reference List

1. MICROSOFT PRESS PASS: News Press Release Microsoft Proposes Acquisition of Yahoo! for $31 per Share
2. CHOICE VALUE INNOVATION:  Microsoft, Yahoo! Change Search Landscape
3. TECHFLASH:  Analysts, investors react to Microsoft’s Yahoo partnership