Enjoy, and I’m looking forward to seeing everyone in Huntington Beach at the Merchandising Workshop!

The world’s largest retailer launched an integrated multichannel campaign focused on user-generated content in December, and I also share some ideas on how to leverage ratings and reviews content in your next holiday season in my Bazaarblog post this morning.

I look forward to seeing everyone in Orlando!

As far as my interview series, you may also be interested in Word-of-Mouth Wisdom #3 with one of the primary Second Life “builders”. Second Life has been in the press a lot lately, and not for the best reasons. But I do believe in the potential of the 3D-Web to create a far more tactile shopping experience, and wrote about that recently in a fairly controversial piece aptly named “Will Second Life Get a Second Life?”. I also spoke about this a bit during my presentation at the Annual Summit.

1. As the author of “The Influentials“, former CEO of Roper, President of WOMMA, Board Director at Bazaarvoice, and CEO of your new business, why do you think the word of mouth movement is buzzing like never before?

Why now and not five years ago?

Word of mouth has always been an important factor in consumer decision making about products and services. Over the course of many decades, consumer research has shown it to be among the most important factors to consumers. However, over the past several years two major forces have aligned to make word of mouth considerably more important to consumers than it has ever been in the past, and considerably more important than other forms of consumer contact with brands. The first force is declining trust - over the past 5 or 10 years consumer trust in official sources of information has plummeted, replaced instead with rising trust in friends, family, and “people like me.” The second force is the rise in technology, which enables consumers to see out peer-to-peer advice and recommendations more easily than ever before. And the more they “try it,” the more they “like it.” So the trend is accelerating.

2. Do you think the reason trust in official sources is plummeting is the rise of the Web? Or is some other factor, maybe sociological, at work here?

The decline in trust started with the corporate scandals of the 1990s (e.g., ENRON and others). I think the transparency that the Web facilitates provides an additional means for people learn the facts and seek out the truth about matters more quickly and thoroughly than the could in the past.

So it is an enabler and an accelerator, in my view, but not the initial impetus. History then shows that trends in trust (up or down) come in cycles, so once the trust decline starts declining it will generally take a while before it turns around the starts climbing again. The trust must be re-earned. And for some businesses, they are beginning to re-earn the trust through their word of mouth initiatives, showing they are sincerely interested in being enablers of open, honest, and beneficial consumer conversation.

3. Do you view what we do as an effective way for companies to improve trust?

The short answer is, yes. And the reason is that when companies open up and let customers express themselves in their own voice — talking both about what they like and what they don’t like in order to help other customers make smart and informed decisions — it sends a message that the company values openness, transparency, and (most importantly) that it respects the consumer. All of those attributes help to build trust.

4. What are other ways that companies can earn trust via word of mouth initiatives? What are some of the best examples you have seen?
There are many ways for companies to engage in word of mouth — some of which take place through online channels while others taking place offline.

Dell’s IdeaStorm is proving to be a powerful way for Dell to listen to customers, and act on their suggestions. Companies like Harley and eBay and others are creating customer communities that are very powerful way to cement customer loyalty and create advocacy. Apple earns trust and customer respect through a wide variety of initiatives, including a very powerful experience that takes place in their retail stores which generates a considerable volume of positive word of mouth for Apple (in addition to a considerable sales volume).

5. Let’s talk about your new company. What are the some of the exciting word of mouth insights that you have discovered for your current clients?

My company’s research involves ongoing survey research with consumers about their word of mouth conversations regarding products, services, and brands.

We monitor this on a continuous basis to help companies understand the dynamics of consumer word of mouth about their category, their brands versus the competition, and among their target consumers. Some important findings:

1. By a 7 to 1 margin, consumer word of mouth about brands is positive, rather than negative. As Bazaarvoice has noted in its research about the J-curve, consumers are more interested in sharing advice and recommendations with consumers about “what works” and what they should be doing, rather than knocking down brands. This debunks a major myth about word of mouth, and should encourage companies to be more comfortable with “letting go” and inviting consumers to talk about them and their services.
2. Media and marketing play a big role in stimulating consumer word of mouth. About half of all consumer word of mouth conversations about brands include a reference to some type of media or marketing. By channel, TV is the number one medium, but the Internet is very close behind reinforcing the important role that the Internet plays as a channel to drive word of mouth.
3. Finally, our study proves just how ubiquitous word of mouth is. The typical American consumer engages in about 125 conversations each week about products and services, and talks about brands over 90 times per week.

That’s a lot of word of mouth. In fact, our projections are that there are 3.4 billion word of mouth conversations each day in America about products/services, and 2.3 billion brand-specific conversations.

There are just a few of the many insights we have learned. But the real power of our research is to dig into the data at the category and brand level to help companies understand their strengths, and opportunities for improvement, in a word of mouth era.

6. What do you think about Wal-Mart’s decision to launch customer ratings and reviews?

I think Wal-Mart’s decision to offer ratings on reviews is a very significant development in the growth and development of word of mouth.

Anytime the industry leader in a category gets actively involved in something new and innovative it sends a very loud signal. And, in this case, the signal is to multiple parties:

(a) to Wal-Mart’s consumers: the message is that their voice is important and that Wal-Mart wishes to listen and let them be heard;
(b) to the many manufacturers whose products will be reviewed, letting them know that Wal-Mart is serious about opening up this new and important channel of conversation; and
(c) to other retailers who have been sitting on sideline, wondering if they should engage in word of mouth or not. So this is both an important development for Wal-Mart and it’s customer base, as well as for the word of mouth movement.

1. Please define “Millennials” and provide our readers with links to your research on them.

I’d refer your truly curious readers to Litmus, Resource Interactive’s white paper on this economically influential but somewhat mystifying generation of consumers. You can also see a slide summary of the presentation and hear the millennials in their own words at our MySpace page.

Born between 1982 and 2000, digital millennials, as we refer to them (they detest the moniker Gen Y as it implies some similarity to Gen X) grew up while technological convergence was making its way across giant industry sectors and small digital devices alike. Small wonder, then, that digital millennials’ lives are also blending formerly discrete spheres such as private and public, consumption and production, entertainment and education, socializing and creativity, shopping and self-actualization.

As a result, marketers have to rethink how brands must follow suit and be a thorough blend of commerce and culture. This is, of course, why there’s no end to the talk about content—what value to assign to consumer-created content, how brands can provide content—beyond slogans and jingles—to the moderately-connected majority of people online who can “resell” the brand message if sufficiently informed.In terms of psychological makeup, millennials are a fascinating generation, and inspire radically diverse opinions. Most demographers anticipate great things from them due to their optimism and social conscience—but not all. Some researchers believe millennials’ heavy reliance on digital devices for socializing and their parents’ non-authoritarian and indulgent child-rearing styles have bred attitudes of extreme self-entitlement and have stifled their interpersonal skills.Our research led us to formulate five millennial ‘demandments’ that play to their needs and wants: KEEP IT REAL (wow, can they detect inauthenticity), HEAR ME OUT (they have a high regard for their own advertising savvy—and have been taught teamwork at school), BE ORIGINAL OR DON’T BE (novelty has grown in importance because it keeps commoditization at bay and fuels the influentials’ social credibility), MY WAY NOW (instant gratification doesn’t seem unrealistic to this generation), and ENTERTAIN ME (fun and funny are the two killer apps for a media-clogged world).
 

2. How will brands market to them when the Web is completely ubiquitous and mobile?

Millennials’ social lives we know to be mobile phone-intensive—they’re tethered to their handsets—and with national wireless programs catching on, their world will soon be one giant ‘hot spot.’ This means marketing can accompany millennials everywhere. But there are new rites, rules and priorities. Here are a few:

• Be real-time because millennials are attracted to spontaneity as an antidote to their overly scheduled lives.
• Invest in geo-targeting. Devise marketing—and pop-up retail events—that support the sudden convergence of cell phone-communicating people. If you don’t know the meaning of ‘swarming’ or ‘twittering’, (folks communicate where they are and what’s going on by text messaging…) you have some millennial homework to do.
• Always be permission-based. A web-everywhere world holds great potential for the abuse of consumer intimacy.
• Support co-shopping or social shopping because millennials confer with friends on their path to purchase.
• Make your marketing pass-along worthy.
• Be open to consumer participation in your brand.

3. Your new book, “The Open Brand”, is coming out soon. What are the top three lessons for marketers in “The Open Brand”? Are we in the midst of a permanent shift in marketing?

Absolutely. The shift has already occurred, but marketers haven’t quite caught up to the reality. We’ll experience it full-throttle in the next few years.

As for the top three lessons…really, Brett, there are four. In a web-made world, “open for business” doesn’t mean what it once did. In fact, it now means “never closed.” But we think today’s brands need to go beyond the traditional hours-of-operation and instead hang out a sign that proclaims them to be truly O.P.E.N. These four lessons are handily summarized by the book’s title: brands have to be O.P.E.N.—On-demand, Personal, Engaging, and Networked.

O…Is FOR ON-DEMAND.

Today’s consumers want—and often get— whatever they’re seeking “right now.” In a world where instant gratification is a way of life, on-demand is consumerism taken to its logical extreme. The timeline of desire to decision to purchase to acquisition is now condensed to a fraction of the old standard, fostering an immediate, intimate connection between brands and consumers. Of course, being an on-demand brand isn’t easy: The logistics, infrastructure and resources needed are infinitely complex, from just-in-time inventory systems to online order/in-store pick-up services. But brands can no longer opt-out of being on-demand if they want to capture the hearts and wallets of today’s quicksilver consumers.

P…IS FOR PERSONAL.

It was easier to address a homogenous audience when consumers were merely consuming. But shortly after the web proved itself a serious channel for both brand-building and direct sales, it became the teeming province of the people, not marketers. Millions leave traces of their individuality every minute, everywhere on the web, and even when forming an ad hoc consensus about products, services, or issues; even when helping to build Web 2.0’s architecture of participation, their voices and interests are irrepressibly distinctive. An open brand gets personal—not with one market of many but with many markets of the one—through constant consumer dialogue and the latest in cross-channel profile management that brings the brand closer to consumers’ real-time needs and wants.

E…Is FOR ENGAGING.

Brands used to compete primarily with each other for consumers’ mindshare, but they now have to share the spotlight with creative consumers, whose post-prime time long tail of personal narrative, mixed media entertainment and worldly appetites writ large make a TV spot look static and solipsistic. Marketers have to study what engages the masses, and how it is made meaningful through high concept and high touch, then apply this to brands in a bid for their own place in the social web. Interactivity holds a key to deeper consumer absorption in a brand’s value system, so open brands should start here: with the sine qua non of digital marketing.

N…IS FOR NETWORKED.

A single consumer has exponential brand potential when she goes online. She has a potential lifetime value, as she always has, but she also has viral value as she engages with her various online communities. Open brands become part of social networks by marketing to the niche of communal consumers who interact with other, like-minded consumers online. Though niche marketing is hardly new, the exponential network effect of online word of mouth marketing is. So the more the brand works the network, the more the network works for the brand.

4. Do you think marketers will ever figure out how to advertise on social networks?

Of course! But not without the loss of a few jobs…and the creation of a few new ones. It’s not a lack of imagination that has created a gap between marketing and Web 2.0; it’s the infrastructure of our entire industry that has slowed us down a bit. Reorganizing even the nimblest agency around consumer involvement means conceding some creative rights to outsiders.

It’s a different paradigm. It’s not traditional advertising, but consumer-endorsed media. It’s where the consumer is out there placing the ad for you—through the tools the brand provides—whether it’s wallpaper downloads on a MySpace page, etc.

5. How will they do so without violating the space? Aren’t these forums ad-adverse by the nature of the visitors, who are there mainly to “hook up” with friends (i.e., isn’t it kind of like advertising in a dorm room at a party)?

Social networking is in its infancy as a medium. It will undergo the same changes other media undergo in our long tail economy—once critical mass has been achieved, or the hits have been proven, there’s a splintering of interests—and consumers. Take 43things.com, for instance, a social networking site based on postings of the 43 things people want to achieve in their lifetimes. If one of the more popular goals is to learn a foreign language—how far is the leap from this to foreign language learning products? The majority want to vacation in Paris or Mykonos? Enter travel companies with relevant messages. And, if those companies are successful, consumers will port those advertising messages into their social networks.

6. What kinds of new advertising do you think user-generated content will lead to?

We’ll see a gradual shift away from anonymous spokesperson endorsements to icitizen endorsements. Icitizens have used Web 2.0—and the democratization of fame/celebrity—to create their own personal brands. Those (what we call ‘elite’) icitizens who have achieved a significant following achievable only online (where sufficient popularity breeds more popularity) are, literally, the next face of your brand.

We’ll also see more emphasis on narrative, homegrown and marketer-produced, that celebrates consumers’ customization of a brand for their personalities and lifestyles. Advertisers won’t talk the talk of a car or an audio system being right for ‘you’—the homogenous audience—because no one believes in that monolith anymore.

Last but not least, we’ll see campaigns based on a tighter integration of consumers’ desire to create, share and influence—the three dominant social web behaviors—and marketers’ accommodation of these behaviors through digital DIY tools—widgets, cut-and-paste mashup materials, blog toolkits w/built-in RSS functionality, etc. There won’t be a pre-built campaign; there will only be these personalized permutations.

7. What do you think about Pete Blackshaw’s new marketing framework?

Well, we love it because we have a similar chart in The Open Brand:

8. Which brands already embrace the principles you lay out in The Open Brand?

We cite over 20 examples in the book. Here are just a few:
Webkinz® from GANZ, is not simply a line of collectible stuffed animals, but a toy phenomenon triggered by the appeal of its personalized online playground. Each stuffed animal (enjoyed primarily by kids 5-11), comes with a secret code. When kids type in their unique codes at Webkinz.com, they receive a pet avatar that looks like the stuffed one they own. The kids also gain access to KinzCash to create and furnish rooms, and buy food and clothes. Kids see Happy, Healthy and Hungry meters for their “pets” that let them know if they’re taking good care of their pals. Additionally, kids can play arcade games to win more KinzCash to support and accessorize their pets, and can chat safely online with friends using stock phrases (without revealing any personal information).

NIKE, one of the most recognized sports brands in the world, is expanding beyond its long-time strategy of endorsing celebrity athletes; it’s getting personal with everyday athletes. With NIKEiD, consumers can express their personal style by customizing made-to-order shoes, apparel and accessories. Nike’s teamLOCKER site invites sports teams to collaborate on customized products, enabling voting for best individual designs for group purchase. And, Nike+ sneakers, in combination with Apple’s iPod nano, provides a personal trainer of sorts: The shoe’s sensor communicates via a receiver plugged into the nano and a voice (male or female option) describes the runner’s stats, calories burned, and distance remaining. The system even provides a motivational boost by playing (pre) self-selected power songs. Runs are automatically tracked at nikeplus.com, where discussion boards, school challenges, and consumer-recommended runs around the globe can be found.

Pontiac teamed with Yahoo! to launch Pontiac Underground, a new online destination for Pontiac owners and enthusiasts. In response to a Yahoo Autos study conducted by J.D. Power and Associates that found that 94 percent of respondents who use the web said they believe consumer-generated content is an important source when making buying decisions, Pontiac wanted to support and connect its existing but disparate communities. Pontiac Underground centralizes Pontiac-related content from various Yahoo groups such as Flickr (photos), Yahoo! Answers, and Yahoo! Video and integrates links from outside Yahoo! in conjunction with its “Inside Track” blog and other social media tools. The site also offers RSS feeds of user posts from niche advocacy groups into the broader clubs area of the site.

For more words of wisdom from Kelly, I highly recommend her blog, one of the few I regularly read.

If you have any questions about this material, please ask them here. That way everyone that reads this blog will benefit.

He also knows a thing or two about word-of-mouth marketing. Outside of the fact that he has made many investments that have to do with the subject, you may remember that Half.com bought the naming rights to a city in Oregon and renamed it Half.com. This was a seemingly silly PR stunt (as I remember how the media initially reported the story at the time), but it paid off in spades. Read Mark Hughes bio (a past speaker at a Word of Mouth Marketing Association conference) and you’ll see what I mean.

1. In December, Time Magazine announced that their “Person of the Year” is “you”. As in the “prosumer”, or consumer-turned-producer. Do you agree that the power of the “crowd” was the biggest trend of 2006?

Yes. I think we’re seeing a major shift in the online value chain. The initial killer application of the Internet was email (one-to-one), followed by websites (one-to-many). We’re now seeing the creation of a whole class of tools that easily allow people to create, organize and publicize content (many-to-many). With so much content being put online every day, the big challenge (and opportunity) is to find ways to help people discover the stuff that is relevant to them. Leveraging the “wisdom of crowds” to intelligently filter/recommend content is a very large and meaningful opportunity.

2. What are your most interesting investments in this area?

Other than Bazaarvoice (of course), other “social media” companies in our portfolio include:

VideoEgg has built a very powerful distributed video network – and currently power the user-generated video of 5 of the top 20 social networks (AOL, Bebo, Hi5, Tagged, and MyYearbook).

StumbleUpon has developed an innovative (and addicting) way to harness the wisdom of crowds for website discovery.

Aggregate Knowledge uses the behavior of previous visitors to a web page to automatically generate product and content recommendations.

Wikia was founded by Jimmy Wales, the founder of Wikipedia. The company leverages people’s innate need to create, share, and contribute to the subject areas that they are most passionate about.

3. How do you think consumer-generated content will impact the world of advertising?

I see it having an impact in a couple of ways. First, advertising goes where the eyeballs are. Consumers are spending far more time consuming consumer-generated content so over time advertising budgets will increasingly move towards that space. Second, it increasingly allows consumers to participate in the advertising process itself. The traditional one-way advertising broadcast model is now evolving towards more of a dialog between advertisers and consumers. Forward thinking advertisers are using the collective intelligence and creativity of their consumers to help them craft their messages and even create their advertising. This will result in advertising that is much more personal and relevant.

4. Do you think Google overpaid for YouTube?

No. With its massive user base and powerful community, YouTube has clearly emerged as the leader in the online video sharing space. With online video advertising set to exceed $1BB by the end of next year, and Google’s ability to extract the most value out of any given online inventory, the acquisition seems like a very savvy move on Google’s part. This is especially true when you think about the fact that we are only beginning to see the potential of video on the Web, and the opportunities that lie ahead in this space.

5. Given your experience at Half.com, what advice would you give our clients in leveraging their consumer-generated content?

I think it’s important to understand the impact that consumer-generated content such as ratings and reviews can have on a business. In addition to allowing your consumers to communicate with each other, they also allow online merchants to begin tapping into the wisdom inherent in their current consumer base, and leverage that to create a better shopping experience for everyone who comes after them. Companies can no longer afford to not participate in the dialog that their customers are having about them and the products/service that they provide.

6. What is the future of consumer-generated content? Where does all of this lead us 5 years from now? 10 years?

Consumers today are more empowered than ever. It is now cheaper and easier than ever to create content, share your opinion, and distribute it over the Web. While this will inevitably create an overabundance of content, it will make finding the content that is most relevant to you increasingly difficult. Over time I think there will be less reliance on traditional “editors” (e.g. newspapers) and “packagers” (e.g. music labels, publishers and studios) and more reliance on automated discovery tools that harness the “implicit web” to allow people to find the content that is most interesting to them.

7. What do you think the biggest trend of 2007 will be?

Online video has reached a tipping point. Given the amount of innovation, new developments, and widespread consumer adoption in this space, I think video will continue to be the biggest trend of 2007.

I’m sure Josh would love to hear your comments, so please write in.

Pete is well known on many levels. He was helping CDnow run analysis back in the pre-boom times. He has been very outspoken in the age of digital music, advising music companies on how to market in these rapidly changing times. I remember him best as my Markstrat professor, one of the better MBA classes I had the pleasure of taking.

Dave is also very well known. He consults for companies all over the world. He served as the Executive Director of the Marketing Science Institute. And few know him as the co-founder of BizRate, where he served on their Board of Directors from its inception to when Scripps bought the company for $525 million in cash almost two years ago.

So begins our interview…

1. You two have studied and taught marketing for your entire academic career and now teach at my favorite business school. What do you think about the recent trend of user-generated content? Will it change the world of qualitative and quantitative marketing analysis?

Dr. Fader:
First, it’s extremely important to distinguish amount different types of “user-generated content.” There’s a huge difference between a daily blog entry versus posting some comments on an open-ended discussion board versus a customer filling in a feedback form on a commerce firm’s website. And this doesn’t even get into “real” content such as a homemade video. It’s a big mistake to treat all of these sources of customer input as interchangeable with each other.

Second, yeah, there’s a ton of new stuff being created every day, but the big question is whether customer behavior is fundamentally different than before, or are we just getting a new window to help see the behavioral process in a way that we could never see it previously? I tend to be relatively conservative about this (i.e., I believe more in the latter than the former) and this has important implications for model-building and analysis. Too many people are saying that it’s a “whole new world” and are throwing out the old models/metrics. This was an enormous mistake for many firms at the dawn of the Dot-Com era, and I think history is repeating itself again. As a specific example, most of today’s research on social networks is inferior to work that was initiated back in the 1960’s. The available data are way better today, but firms are drowning in it and not being very thoughtful about how they use it. Too many firms are coming up with “fun facts” to impress senior management or investors, and not drawing specific, meaningful insights that really add value to the data-collection process. It’s important to do some serious thinking before looking at any data. Come up with some specific hypotheses, or guesses, about the relationships you expect to see, then test them. The complete opposite of this is “data mining,” which is what most companies tend to do.

Dr. Reibstein:
First, I agree there are different types of “user-generated content,” and they should be treated differently.

Let me add that there is a reflection that there is significant bottled-up sentiment that many people have to share. Let me start with a caution about some of this content, however. As with survey research, and the same holds for user-generated content, beware of non-contributors. In survey research, we would refer to this as non-response bias. Nixon (I am dating myself) referred to it as the “silent majority”. The question is what are the feelings of those that didn’t reply or generate any content. Were they more satisfied and didn’t feel a need to comment? Dissatisfied customers, experiences, generate many more comments than satisfied. Mediocre experiences generate the least. The assumption with survey research, customer satisfaction surveys, and beyond is the non-respondents are not any different than the respondents. And, in many cases, that is correct.

All of that being said, there is the common belief that consumers trust other people’s opinions and content more than they trust that of advertisers. Advertisers’ motivations are to represent their products/services in the best light. Other consumers are less biased. Of course, this is a universal statement that should be challenged. It would be safer to assume that some consumers are more willing to rely on other users’ input. The question is what proportion. I am sure this percentage will differ by category.

It is the case that consumers can probe and interact with other consumers in a way they never have previously been able to with companies. Companies, in general, have not been able to figure out how to deal with the multitude of customers and address each of their questions, yet given a large number of customers, it is likely that customers could ask very specific questions and find user-generated answers. Some companies have been able to harness this “community of users” to help address such individual questions. For example, P&G has a user group for detergent where people can ask and get responses about how to launder and so forth and get responses from other consumers. This has proven very powerful.

As for the impact on research, my suspicion is no. The type of “user-generated” data does not fit traditional modeling and it is coming in such mixed forms, people have yet to fully figure out a systematic way to analyze it. Let the fun begin, but as Pete says, don’t throw out all the good we have learned to this date about how to analyze problems.

2. What does this consumer-as-producer trend remind you of most from your background? In other words, is there a previous marketing framework or trend that you relate this to? [I am a believer that most trends are cyclical – and that is part of the reason I chose the word “bazaar” as the first part of our company name].

Dr. Reibstein:
I believe the “consumer-as-producer” trend is a recycling of all the old research from the 60’s of “word-of-mouth” communications. We saw it resurface recently in such things as “buzz marketing,” “guerilla marketing,” “coolhunting” (the article), or even Gladwell’s The Tipping Point. None of these were looking at the electronic world, but all were looking at how some consumers were influencing others. We can even take this back to Veblen’s The Conspicuous Consumer from the 1890’s to see how far this really dates back. No, I do not date back that far! All the trend setting from the fashion world has been based on this understanding.

3. What do you think about the current trend of user-generated advertisements? Do you think this is a fad, or a permanent change in the way ads will be constructed? Will we see more of less of this in the future, and how will it evolve? Some recent examples: Doritos, Oscar Meyer, GM Tahoe, and Yahoo!.

Dr. Reibstein:
In some sense user-generated advertisements are not as unique as they might seem. Companies have previously tried to harness these consumer-initiated responses by showing ads which were interviews of “customers on the street”. In these cases, it was sponsored by the companies, but they were selecting real people and getting authentic reactions.

Today, there are major differences—first of all, in the company-sponsored ads, they were able to be very selective and only show the ones that were positive for their company. Today, it is out of their control. Secondly, the technology is so much better, accessible, and less expensive, that people can develop their own ads. The examples you gave are all very energizing and giving the power to the consumer, yet, once again, we have the companies selectively editing the ones to be shown. So, this is no different. Nonetheless, the approach has now got some customers energized to create very clever ads. The agencies should be worried. (I might note, this is consistent with the notion of reality TV.)

Another comparison is companies putting their name on apparel for customers to wear around. This is a little different, but to a very large degree, it is having individuals electing to be walking billboards for their products. It is one thing for Polo to put their brand on shirts and everyone can see who is wearing them. It is another step forward for Budweiser or Harley to have their name on t-shirts and have people wearing them around. This has been a long-time strategy of having users influencing other users and a form of pre-Internet social network marketing.

If this approach grows much, we can anticipate the novelty to wear off pretty quickly.

3b. I remember how often companies used video testimonials in ads; that is a good historical point. The difference now is that consumers are creating the ads themselves. And the main incentive for consumers to do so is social recognition. That feels like a major shift to me and another unforeseen benefit of the Internet as a low-cost, easily-accessible, globally-connected form of communication. Isn’t this the start of a permanent shift for agencies? How do you think they will adapt?

Dr. Reibstein:
I agree that self-created is a shift, but the ones we cited are not truly self-motivated. In each case, the action was initiated by the firm. To the degree there are ones that are self-developed, like when people tattoo a brand on themselves, as has often happened with Harley, that is a real shift, but didn’t just start now. It is a true sign, though, of consumer commitment.

Dr. Fader:
As Dave suggested, right now it’s a pure novelty, kind of like e-mail marketing back in 1999. I can assure you that there will be no fuss about user-generated ads in the 2012 Super Bowl. That doesn’t mean that such ads won’t exist, but no one will care. This is my main point here: customers do not care about the origins of ads (how many consumers can name even one ad agency?). They only care if the ad moves, entertains, or persuades them in a meaningful way. If consumers can do a better job of this than advertising professionals (which, in general, I doubt they can do), then that’s great.

There is a huge difference between user-generated ads and user-generated comments. Yes, consumers often want to see opinions from other regular people. In that case, the source of the content really does matter. But this is entirely different from advertising, and when the two come together, bad things happen…

3c. Pete, will you elaborate on what you mean by “bad things happen…”

Dr. Fader:
I’m sure you’re familiar with the growing list of stories that involve a firm posing as a regular user and “seeding” comments in a user forum. And surely, for every firm that’s been caught with their hand in the cookie jar like this, there are a hundred others who have gotten away with it. Not only do these episodes harm the credibility of the firm but they also harm the credibility of the forum itself (even if it’s not necessarily their fault for letting the fraudulent comments get through). Anyway, this is the red zone between user-generated advertising and user-generated comments, and firms will continue to find ways to toe the line…

4. How do you think brands will figure out how to advertise in social networks? Obviously the “eyeballs” there are enormous as MySpace is now one of the top-ten sites of the Internet. And eMarketer predicts that social network advertising will top $1 billion this year (5% of what eMarketer projects will be spent on online advertising overall). But are these mediums the right place for a brand to reach a customer? MySpace users seem to fight “the intrusion” often.

Dr. Reibstein:
If you have people going to MySpace or YouTube or other social network sites and searching for keywords, they become primary venues for firms to do their advertising. The risk is alienating potential customers by invading their space. I suspect customers will be ready to adapt and not be too offended as ads start to appear more and more often. For some customers, it will even have appeal as they are interested in certain topics and finding links to products/services might be of interest or ease for them.

An interesting phenomenon I am aware of is some companies, particularly start-ups, are producing their own video’s and rather than buying airtime or webspace are putting up these ads on YouTube and encouraging some individuals to go there and to “forward to a friend”. So, these social networks are being used directly as an advertising medium.

[Note from Brett: see Wayne’s post on Blendtec for an example.]

Dr. Fader:
RetailWire ran a discussion about this recently, and here’s what I had to say:
“I frequently use Facebook to snoop around on my students and I see many of these commercial-related groups there. People gladly align themselves with brands that they favor, but this by itself doesn’t mean anything. No one really does anything there, and they can’t compare to more socially oriented user-driven groups such as “So-and-so was incredibly drunk last weekend and I have the photos”! So it might seem like a “competitive necessity” for brands to stake out some turf in these new worlds, but I don’t really see why. Many of these networks will collapse under their own weight due to excessive meaningless links (I think MySpace is in great danger of that right now), and serious investments that some brands may make in this arena will be largely wasted (albeit in a different way than the students they are trying to appeal to)”. The full discussion is here.

And then there’s the use of these networks for “viral” advertising. See my comment about e-mail marketing above… much of it will diminish as the novelty wears off, but there will always be room for really good ads to be accessed and shared on YouTube, etc. But the metrics that firms use to gauge the success of these ads needs to change. I’m a firm believer that the Subservient Chicken campaign, for instance, was useless, regardless of how many people (including me!) wasted time on it.

4b. Dave, I hear what you are saying about YouTube and the viral effect of some video ads online. Philips took a risk with the “Shave Anywhere” campaign and it paid off. But it seems to me like it is going to be hard for YouTube to monetize their traffic unless they add a pre-roll or post-roll ad to each video. And won’t that hurt the pass-along effect? I can see how a company can produce a “made for YouTube” ad as a standalone “unit”. But a pre-roll or post-roll seems much more difficult to me (yes, Yahoo! has these for their videos, but they don’t have near the video traffic that YouTube has).

Dr. Reibstein:
I think we will easily adapt to pre-roll and post-roll ads and learn to skip them. Look at CD’s, videos, and DVD’s that have all added pre- and post-promotions. We have learned to accept this, and in some cases, because of the capability of the targeting, have even appreciated the ads because they are relevant to us. Certainly, when we go to movie theatres we now see the bevy of ads before the feature, not just trailers, but also for other products. We have accepted these, and as I suggest, even enjoy them in some cases.

4c. Pete, doesn’t your response contradict one of the goals of branding? If it is about mind-share, doesn’t it matter that PINK Victoria’s Secret has 210,620 fans?

Dr. Fader:
Sure, any PR is good PR and all that. But the value of these connections is minuscule. I suspect there is no discernable difference in the collective lifetime value for these V-S customers with or without these connections.

Likewise, I’m not saying that Subservient Chicken, et al, are bad ideas – I’m just saying that they don’t generate nearly as much in the way of sales as these firms would like to believe.

So it’s great for firms to jam a stake in the ground and say “we’re here!”, but they shouldn’t expect much economic reward from it. The same is true of most branding efforts, even in traditional media.

5. Dave, you served on the Board of BizRate (now Shopzilla) since its founding. Obviously that business was based on consumer-generated ratings of retail businesses, which powers their shopping search results. Now new shopping search engines like Wize.com and Become.com are popping up frequently. How do you think customer ratings and reviews will help evolve shopping search? What opportunities does this pose for marketers?

Dr. Reibstein:
As a co-founder and board member of BizRate/Shopzilla, I, from the beginning, have believed that consumers want to hear from other consumers about their product and merchant experiences. It is an unbiased (or less biased) view that has some greater degree of trust. The first opportunity this provides to the marketer is the feedback from the marketplace about how consumers perceive the offerings. In some sense, the marketing research is being done for them. The opportunity is to listen to it, not just to cringe from the bad ratings. It will also be the opportunity to observe what seems to matter. Is something poorly rated on certain dimension, yet still captures sales? There is information in these ratings.

6. We started this interview with how the world of marketing analysis is changing. I would like to revisit that in two ways. First, what are academics doing to evolve that, given that both of you agree that companies are drowning in data and the methodologies being used are not advanced enough? And, second, what would you recommend to companies that are planning to embark on a user-generated content future in their marketing so that they ground themselves properly?

Dr. Fader:
Unfortunately, the gap between academics and practitioners in marketing is widening further than ever. We teach the same old stuff as we’ve taught forever (albeit with fancier technology), and much of the content and methods we teach are far removed from the needs of managers. This is particularly true in data intensive businesses such as e-commerce. So we deserve most of the blame, but managers bear some responsibility as well. The 24/7 crisis mentality of today’s executives makes it impossible to be thoughtful and deliberate in approaching data. Quick and dirty solutions are not only tolerated but they are rewarded, while doing things the right way is not a popular path to follow. So overall, it’s a pretty grim situation, which is very disappointing considering the coolness of all the new data that are coming out of companies like Bazaarvoice and its clients. And there’s no indication that things will get substantially better in the near future – both sides will continue to drift further apart…

Dr. Reibstein:
I believe there have been several academics that have been making some good strides in understanding the wealth of data we now face. One of them is my colleague and co-responder in this blog interview who has been too modest, Pete Fader. He and some of his former doctoral students such as Bruce Hardie (London Business School) and Wendy Moe (University of Maryland) have been leading the front in how to analyze the onslaught of data. Others such as Alan Montgomery at Carnegie and Florian Zettelmeyer at Berkeley have also been making major strides. The outlook is not nearly as dismal as Pete paints it.

There are some companies as MarketingNPV and others that have been groundbreaking in helping firms organize their data and connect it to marketing outcomes.

Dr. Fader:
Too many people in the “user-generated content” area (as well as its cousin, social networking) think that everything is totally new and there’s nothing to learn from the past. They would be amazed at some of the work that was done in sociology and other related social science disciplines years ago. Likewise, they would be amazed at the power of the statistical methods that were developed back then (and unfortunately long since forgotten by marketing types).

I can suggest a few readings – a couple of classics are listed below. But note that both are out of print, which speaks volumes about the state of affairs in this area. Both require a bit more than the usual MBA statistical training. It is essential for an advanced manager to have such skills. In fact, I go further to suggest that any CMO (or CMO wannabe) should be able to read and appreciate this kind of work.

Greene, Jerome D. (1982), Consumer Behavior Models for Non-Statisticians, New York:Praeger.

Massy, William F., David B. Montgomery, and Donald G. Morrison (1970), Stochastic Models of Buying Behavior, Cambridge. MA: MIT Press.

My hope is that Bazaarvoice, with its deep grounding in fact-based management, will be able to escape the morass of today’s custom analytics, and I am eager to help them on this important mission.

Thanks again to both Pete and Dave for doing this interview. They encourage you, the readers, to ask further questions or make comments via the comments section below.

Again, Second Life may not be the 3D Web to survive - it is very early in the adoption curve and it all depends on their execution (the good, old basics of business).  But this move should be the spark needed to fuel further interest in the 3D Web as the next-generation medium for shopping, browsing, and socially connecting.  Just look at what happened with FireFox, based on the open-source Mozilla Project.  It now represents over 4.5% of all Web browsers in use.  That may seem like a small number, but remember how many people are online now (over 1 billion).  And don’t count the market-share leader, Microsoft, out in adopting the 3D Web.

At last year’s Shop.org Multichannel Executive Symposium, Tony Lenk said that today’s 2D Web is like shopping in a store one square foot at a time.  I think that is a little extreme (site search from Endeca and Mercado, to name just one example, help you instantenously find what you are looking for as opposed to hunting for it in a store).  But he makes a good point, and his recent DHTML enhancements to Gap were designed to make online shopping more tactile (and it paid off).  Second Life and its 3D Web successors will definitely improve online shopping in a major way.  Remember that scene in The Matrix where Neo says, “guns, lots of guns”, and the endless row of guns comes streaming by in real-time?  Kind of like that… but smarter.  The key is adoption (wide availability and easy installation), speed (Second Life needs a heavy-duty machine and bandwidth to run well), and a relentless focus on serving their users well (Mark Cuban says it well).

If you missed my in-depth Word-of-Mouth Wisdom interview with Giff Constable, who builds a 3D, virtual presence for businesses in Second Life, you can read that here.

There has been a ton of buzz (mainly positive) about the online 3D world, Second Life.  My two favorite magazines, BusinessWeek and Wired, write about Second Life in nearly every issue.  Wired called it the “coolest destination on the Web“ and they loved it so much they set up shop there.  IBM recently built a Circuit City store in Second Life, and Dell recently opened up shop there as well.  I have my own views on why Second Life is getting so much buzz.  First, the promise of the Internet and virtual reality has been science fiction worthy for a long time.  The groundbreaking book, Neuromancer by William Gibson, invented the term “cyberspace”.  The insane cult-classic movie, Brazil by Terry Giliam, showed a warped glimpse into the world of virtual reality.  Neal Stephenson’s book, Snow Crash, made the virtual reality Web more tangible and exciting by painting a vision of the “Metaverse“, which caught on as a new term to describe many massively multiplayer online RPGs (role-playing games, like World of Warcraft), and was adopted by Second Life to describe their virtual world.  Second, the promise of the Web on viable telecommuting and having a successful business that doesn’t need to be located in a specific geography (like Silicon Valley) is a very real desire for many.  And third, it is just plain cool to imagine a world that you can live in without the rules of gravity (in Second Life, you can fly), where you can be anyone (in Second Life, many choose avatars that are quite interesting to say the least), and build anything (in Second Life, all it takes are a few pixels).

I have my own experience with “virtual worlds”.  In 1990, I created Renegade Outpost, which grew into the most popular multiplayer role-playing game on the Internet by 1992.  I only had 5,000 players worldwide (as compared to World of Warcraft’s 7.5 million today).  But, in comparison, Renegade Outpost was a text-based game which only supported 256 concurrent players and you could only access it via TELNET (there wasn’t a whole lot of HTML in those days).  In any case, it was completely immersive.  Players could create their own worlds once they became immortals, and many people would play over 160 hours per month.  The ability to communicate with anyone in the game (players were connecting from Germany, Singapore, and many other places around the globe), go on quests together, and create your own world for other players to explore was a powerful draw.

So, from my own experience, Second Life makes a lot of sense.  And I am very bullish on the need for an immersive, 3D Internet experience, whether or not Second Life will be the forum to survive is the key question.  But, for now, it is a very exciting place, and I think we can all learn from it.

 

Giff Constable may be the best person to explain how businesses can tap the potential of Second Life, and he was gracious enough to be my interviewee today.  I first met Giff at Resource Interactive’s iCitizen conference, where he and I were both speakers.  He is the VP of Business Development at The Electric Sheep Company, which builds a precense in Second Life for businesses.  Giff has 12 years of experience in Internet and software businesses, and a Princeton University degree.  In Second Life, Giff is known as Forseti Svarog (he told us why at the iCitizen conference, but I can’t remember).

So begins our interview… (all images below are samples of Second Life portfolio work from Giff’s company, click on them to get a full-size view).

1.  Giff, would you please provide an overview of your work in layman’s terms to our readers as they may not be familiar with Second Life?

The Electric Sheep Company is a 40-person company focusing entirely on virtual worlds, including Second Life.  If you want analogies to existing businesses, we can be thought of as a mix of movie production house meets Web development company meets strategic consultancy meets software company.  We really do blend everything from strategic advice to user experience design to virtual architecture and application development.  The cross-functional nature of our business makes for some interesting challenges and a really interesting team.

The second part of that question of course is what is Second Life itself, but that is not a simple thing to answer in two sentences and layman’s terms.  It is an online, immersive 3D space where people interact as customizable avatars, participate in an economy with an annual GDP run-rate of over US$100 million, and where all of the content seen and used in the world is built by its participants, whether individuals or corporations.  Say that ten times fast?  It is important to note that Second Life is closer to the Internet than a game, although like the Internet games are built on top of it.

 
2. What companies do you think are doing the best job of marketing themselves in Second Life?

I’m not sure anyone has totally reached their potential yet, but then I am not surprised given that for many Second Life is still viewed as experimental.  There are quite a few companies now, however, who have dipped their toe in the water, enjoyed the experience, and are now increasing their focus and effort in this space.  Reuters is one of best examples of a success both inside and outside of Second Life.  They received a huge amount of PR outside of Second Life, but they also received a great deal of respect in world.  I’ll touch a bit more on this [below].

 
3. I’m sure you read the article about crayon in Adrants (where Urizenus Skylar, who writes for The Second Life Herald, calls some marketers entering in Second Life a “bunch of desperate clueless &$%^*$&%#”).  We have seen this before with members of Facebook and MySpace vigorously defending their turf from marketers.  How do you navigate this new medium for your clients so they aren’t viewed as desperate or clueless? 

Well, I should first say that Uri loves to stir the pot – the SL Herald is a tabloid after all — but blunders do happen.  Effective navigation requires knowledge of water depths and shoal locations, and in this case, an awareness of history.  Virtual worlders are not sitting around waiting for a brand to come complete their life (probably less in the Second than in the First), and arguably brands need to enter a virtual world with a little humility.  You need to know what has come before, what has and has not worked, and you also need to have a sense of the community.  We try to steer our clients in the right direction, although they don’t always listen to us and sometimes singe a few hairs, but even that is an important lesson.  Frankly, mistakes will be made in this new medium and that is okay.  It is very early days here, and everyone needs to remember that.   It is better to be innovating and helping to define the conversation rather that show up at the party 2 hours after everyone has gone to bed.

 
4. What is your most exciting marketing success to date in Second Life?

To elaborate on Reuters for a bit more:  Reuters decided that their audience was going to be the Second Life residents, and they did a number of smart things to gain the respect of everyone.  They proved their intention to stick around (rather than be a PR stunt) by dedicating a journalist to the Second Life / virtual world beat.  They created a website to go alongside their virtual world presence.  We created an island for them, which they keep somewhat active with interesting events, speakers, and Adam Reuters’ office hours.  More importantly, we created some wall-mounted and heads-up displays which brought in their live news feeds.  This allowed people to take Reuters out into Second Life with them, rather than having to work really hard to constantly bring people back.  From the beginning, it was clear to people that this was a project with substance not hype, and the audience reacted very positively.

 
5. eMarketer predicts that advertising on social networking sites will grow from $280 million this year to $1.8 billion by 2010.  What do you think about their prediction, and how do you think it applies to marketing in Second Life?

I think that number is almost meaningless because social networking is starting to touch everything we do online, so the definition becomes increasingly blurred.  On e-commerce sites, social networking will become an important component of establishing reputation/trust around a product, especially once you can overlay collaborative filtering and reviewing technologies with social network information.   I think that the web and a Second Life-like technology will become increasingly interconnected and complementary.  We will use both, depending on whether we want a 2D or 3D experience for a particular purpose (they have different strengths and weaknesses), and depending on whether we want a live social interaction.  There is no question that people feel more “together” in a 3D immersive environment.

 
6. What would you recommend to Bazaarvoice clients like Sears, PETCO, or HP that may want to dip their toe in Second Life and start planting a marketing seed?

This may sound self-serving, but you really do want to talk to a longtime Second Life consulting group like Electric Sheep or one of our competitors.  The bar is being raised as to what it takes to capture attention, and you do not want to do a cookie cutter project. Even if you have fabulous creative ideas already, chances are they are going to have to be adjusted somewhere to deal with technology limitations or community relations, and you want a guide to help you.  But in terms of basic rules, many are not that far from marketing basics.  Here are a few of my common ones:

• stay honest with yourself about your brand and how it is perceived
• stay authentic and honest with consumers
• decide whether your product really translates into a virtual world or whether you need to focus on brand
• don’t think you can control everything about your brand in a virtual world (or put another way: do not be afraid of your consumer)
• create an opt-in experience and let people take your brand with them somehow
• keep your standards high – you are representing your brand and company
• like a blog, keep things fresh, new and interesting if you want people to come back again and again
• be prepared for technology bumps, because this space is new and evolving extremely rapidly, and rapid evolution in software means bugs

7. Is there anything else you would like to share with our readers?

When people come into Second Life, they ask two basic questions: what do I do? who do I meet? (the order depends on the person).  When planning your virtual world offering, try to answer one or both of these questions.

For further reading, I highly recommend Giff’s blog.  First, he responds to Second Life skeptics.  And, second, Giff does a great job of highlighting 2006 milestones for Second Life.  You may also be interested in my March, 2005 blog post, in which I discuss closing the tactile gap between offline and online shopping (I didn’t know about Second Life when I wrote it).

And for more Second Life images, see Giff’s personal collection or this BusinessWeek slide show (which includes many images from Second Life’s predecessors).  Or check out the Second Life media page, where you can view user-generated movies made within the virtual world.

Joan is Shop.org’s VP of Content and Education.  I remember how excited I was on the day Joan told me she was joining Shop.org’s executive team, and she has already had an enormous impact on the quality of the events, new hires (such as Larry Joseloff), and new initiatives (such as the recent blog launch).  Joan couldn’t have brought a better background to the Shop.org team.  As I mentioned, she previously worked for REI as their VP of Multi-Channel Programs.  She managed two business units, encompassing over $100 million in annual revenue with a team of 200 people.  Joan was responsible for launching REI’s “order online, pick up in store” option for customers, as well as many online services.  Prior to REI, Joan was Office Depot’s Director of Web Publishing.  She has spent more than 12 years in the online industry, including working at O’Reilly & Associates and America Online.  In other words, Joan has more online experience than almost anyone I know.
 

Here is our interview:

1. Please tell us our readers about your success with the pick-up-in-store initiative at REI.  Did the light-bulb go off for the rest of the organization about how much cross-channel shopping was occurring?

The REI order-online/pick-up-in-store program was definitely a team effort, and literally every department in the company played a part in its success. I think that the organization had already had more than an inkling that cross-channel shopping was going on, but this helped underscore how much one channel influenced another in a big way.

[Note from Brett: Internet Retailer reported that in-store pick-up of online orders accounted for almost 30% of REI’s web sales; that sounds like a huge success to me.]

2. Now we live in a world of the increasingly more connected customer, due to the Web.  Broadly speaking, what are the three biggest impacts you think the Internet will have on multichannel shopping over the next three years?

I think that Internet sales will continue to become a larger percentage of a multi-channel company’s sales; the Internet will become more prominent within a MC retailer’s marketing strategy; MC retailers will need to figure out Web 2.0 technologies and see what’s going to work best for them.

3. User-generated content and Web 2.0 are all the rage with the acquisition of del.icio.us, YouTube, MySpace, and many others.  Shop.org itself had a Web 2.0 Boot Camp at this year’s Annual Summit, which attracted an amazing 2,300 attendees.  Why do you think Bazaarvoice is experiencing such rapid adoption by established, multichannel retailers?

The summit had over 2000 attendees, but the attendees for the Web 2.0 boot camp numbered around 150. My personal opinion about Bazaarvoice’s success is that it is based on an idea whose time has finally come. That is, consumer reviews and consumer-generated content, in general, have become mainstream to the point where they can successfully influence browsers to become buyers.

4. What do you think will happen in stores when customers have their mobile Web browsing device with them?

I think that eventually customers will use some sort of handheld (probably a phone) to do pretty much everything in brick & mortar stores: scan product codes to get pricing/product/sourcing information; compare prices with other online and offline retailers; find other brick & mortar stores that have the product in stock and are selling it for less by using Google maps and such; and even use the device to buy the products in the stores either by scanning a credit card or using some other payment method through the phone. Maxwell Smart would be proud!


5. How will user-generated content be used on these devices?  Does your answer change if you consider 1 year from now versus 3 years from now?

In the scenario above, the user can call in customer reviews as part of the product information. Using social networking, s/he can ask advice in real-time on whether the people in his or her network think s/he should buy the product, etc.
 

6. Thinking back to your experience with the pick-up-in-store initiative at REI, how do you see multichannel retailers leveraging user-generated content in an increasing always-connected environment?

I don’t know if I can relate the work I did at REI to this new, always-connected scenario. But I can see that eventually people can use that handheld to reserve/buy a product that they then go in and pick up at a brick and mortar store.
 

7. Any predictions on how user-generated content will change in-store signage, circulars, or other forms of offline advertising?

I think that consumer reviews have a great deal of power to sway buying decisions. That’s gold for retailers, and they are likely to try to use them in any way they can. It’s just a matter of figuring out the best way to get that information across in more traditional online and offline formats.      

I look forward to seeing Joan in a month at Shop.org’s FirstLook conference, where I will be speaking with Sarah Fay, President of isobar, and Jacob Hawkins, SVP of Online Marketing at Overstock.com, on the future of marketing as it becomes impacted by user-generated content.  Joan has significantly changed the format and focus this year, and I think it will be a fantastic event.  I hope to see you there, too. 

Happy New Year, and see you in 2007!

Why do I love this product?  Because, as the title of this post says, it is a “crowdsourced”, word-of-mouth wunderkind!  Let me explain what I mean.

First of all, I have written about crowdsourcing a few times on Bazaarblog (see my May post introducing the term, August post on Yahoo! crowdsourcing ads - with a nod to GM doing the same, September post on Google crowdsourcing image labels, or early December post on JPG Magazine crowdsourcing photos).  I have also referenced the book “The Wisdom of Crowds” several times.  20 Questions is the wisdom of the crowds.  It is a database of over 46,700,000 (and rapidly counting) individual games played by “the crowd”.  The crowd, of course, is you, as in “you: the person of the year” (as you have recently been named by Time magazine).  Yes, 20 Questions is a huge database of consumer(player)-generated content!

You can play the game for free here.  I first heard about it a year ago, from one of Chris Sherman’s articles on ClickZ (theorizing what would happen if 20Q was applied to search engines).  If you haven’t played it yet, it is quite entertaining.  I recommend “Classic 20Q”, which has been built by players’ answers since 1988.  It is hard to beat - pretty much guessing anything you can think of by asking you less than 20 questions.

Second, what does this have to do with word of mouth?  Well, everything!  This game was literally built by word of mouth since 1988.  The basis of most great word-of-mouth campaigns is a great product.  This game became great by people constantly playing it.  Once you play this game, the chances are pretty high that you will tell someone about it.  The more people that play, the “smarter” it gets, the greater the “wow factor”, and, therefore, the pass-along factor continues to increase.

So, once you get done with all of your returns, pick up 20 Questions for $14.95 at Amazon.com, CompUSA. or Sears.  All of that AI brainpower for such a small price.  And now you have a great story about crowdsourcing and word of mouth to go along with it!  Finally, for more interesting reading on the background of 20Q check out the Wikipedia entry, especially if you want to tell your friends about folk taxonomy, neural network, AI experiments.

Today I am interviewing Eric Lituchy, the Founder and CEO of Delightful Deliveries, a new Bazaarvoice client and fellow Shop.org member. I first met Eric in February of 2005 at Shop.org’s first Multichannel Executive Symposium. We are kindred spirits in that we are both eCommerce entrepreneurs. I began my online retail venture, a sports nutrition store, in the summer of 1998. This was one year after Eric started Delightful Deliveries. I would move on to found Coremetrics, while Eric would stick with it and today Delightful Deliveries does $6.5 million in sales and is #445 on Internet Retailer’s Top 500 list.

Now Delightful Deliveries is one of the most well known online gift retailers offering the trendiest confectionary creations and mouthwatering gift baskets from brands such as Mrs. Fields Cookies, Ethel M Chocolates, and Shari’s Berries. An expert in both the food and eCommerce industry, Eric has built a successful online business which markets the most delicious eatable arrangements from wine and cheese baskets to giant chocolate-covered fortune cookies.

Eric realized that sugar makes the world go-round and branded himself as the candy man at the wee age of 9 when he started a lucrative business which entailed stocking up at the local grocery for candy and gum to then up-sell to his 4th-grade buddies - turning over a handsome profit.

A graduate of the University of Arizona, Eric began his marketing career at Young & Rubicam in New York City. Utilizing his advertising & marketing expertise, Eric founded Ale in the Mail in 1994; a marketing company specializing in direct marketing via catalog and the internet for Microbrewed Beers. Three years later, Eric started Delightful Deliveries.

Eric currently resides in Port Washington, NY with his wife, Gina, three year old daughter, Janey, and twin “Delightful Deliveries” on the way. As Eric is a local New Yorker, he’s easily accessible for discussion on any topic pertaining to the food, consumer / gift, and eCommerce industries.

So begins our interview …

Q1. Tell our readers about your business and how it started.

I started Delightful Deliveries in 1998, with my wife Gina. We had just sold our 1st company, Ale In The Mail, and were looking for a new business that matched our interests and where we saw a real need in the market. Delightful Deliveries was originally going to be a traditional direct marketer. We signed a lease for a 2500 sf warehouse and we were going to manufacturer and sell gift baskets and other gourmet gifts. We quickly changed direction, cancelled our lease and decided to do everything via drop-ship. We were really one of the early pioneers, especially online, in this category.

Q2. As the first gifting business to provide customer-driven ratings and reviews of your products, did you have concerns about being a pioneer?

We had absolutely no concerns. We saw ratings and reviews as a natural fit for our products. The fact that no one in our category was doing it was actually a plus. By providing customer feedback we would have a distinct advantage over the competition and we really wanted to capitalize on this fact. Our philosophy has always been “Do what’s best for the customer and we’ll benefit from it”.

We had absolutely no concerns. We saw ratings and reviews as a natural fit for our products. The fact that no one in our category was doing it was actually a plus. By providing customer feedback we would have a distinct advantage over the competition and we really wanted to capitalize on this fact. Our philosophy has always been “Do what’s best for the customer and we’ll benefit from it”.

Q3. Given that the majority of your products are gifted to recipients, how are you getting recipients to write reviews?

This is something that is unique to the gift-giving industry and we thought long and hard about this. If we ask the gift-giver for feedback would this be an accurate and meaningful review? Maybe, but probably not as detailed as we’d like. So we thought that we should try to target the gift recipient. We decided on a multi-level approach. (1) Direct to the Recipient by including a “We Want Your Opinion” card along with each gift we send out. (2) Permission from Gift Givers by asking the gift giver to provide the email of the recipient solely for the purpose of rating the product.

Q4. How are you using or planning to use ratings and reviews in your online campaigns? Offline?

Online we have heavily promoted Ratings & Reviews and we hope to receive ratings & reviews on 75% of our products. We are currently doing a promotion on our website and via email where you can win a $500 shopping spree at DelightfulDeliveries.com. Every reviewer is entered to win and the initial results are very promising. We, of course, include the rating & reviews on all product pages and will be adding “Top Rated” to our filters. Within a few months we will also be adding sub-categories for all top rated products. For example, Top Rated Baked Goods, Top Rated Gift Baskets, etc.

Q5. When you receive a negative review on one of your products, what do you do with that operationally?

Negative reviews are as valuable to us as the positive ones. We look at each negative review and have a step-by-step process to see where we failed the customer. Based on the issue we will call and apologize to the reviewer and offer compensation, contact the vendor for a product evaluation or pull the product if we receive even a nominal number of complaints.

Q6. As this is the start of your community initiative, what’s next?

I agree, this is just the tip of the iceberg. We have just begun staff reviews and I think they are an excellent way for us to connect with the consumer. I also like the idea of expert reviewers, where a small group of customer are asked to review products for us. In the future I’d like to be able group reviewers by demographics, thus making the review relevant to each individual. For example, we sell crunchy chocolate chip cookies that are extremely popular, but, there is one segment of the population, the elderly, that always complains about them because they can be hard to chew. Wouldn’t it be great if we segmented the reviewers so that customer could get the review that relates to them? Video reviews are an interesting idea and I think they could provide a very powerful testimonial for the product. It could, however, be a nightmare to have to watch 1000’s of videos. I’m certain the staff at Bazaarvoice is already thinking about this and how to best utilize video for rating & reviews.

Q7. Any projections on how user-generated content is going to impact businesses over the next five years? What will UGC look like five years from now?

User-generated content, in my opinion, will be the new “mass media”. Instead of 500 channels on your cable box you’ll have 100,000,000 users generating text and video that will be readily available via the internet. While this sounds a bit insane, I do think this is where we are headed and user content will become a major advertising vehicle with the ability to target groups like never before. Relating to Delightful Deliveries, we see customer content as a driving force for growth. Merchandising will change from a push to a pull model. Customer feedback will help to create new product lines and improve on products we already sell. As I previously stated, video testimonials and consumer generated product demonstrations are going to be the norm in the near future. I know we can talk about this for hours, as user content is really in its infancy. How about we can continue this conversation over a cup of coffee sometime?

Eric, I’ll see you at Shop.org FirstLook on January 31, and we’ll continue our conversation over a cup of coffee! For now, I would like to invite our readers to ask Eric any questions you want via our comments section. I will make sure that he gets all of your questions so he can respond.

Round two is getting a little more interesting, as Blockbuster finally starts to leverage their stores to create a potentially more positive word-of-mouth offering. In today’s Wall Street Journal, Blockbuster announced that they are letting subscribers of Netflix rent movies for free through Dec. 21 by simply walking into one of their stores and redeeming the tear-off address flap from the signature red Netflix envelope for the free rental. This is a promotion for Blockbuster’s new “Total Access” feature, which lets customers return DVDs rented through its online service, which competes directly with Netflix, in their stores. Blockbuster announced Total Access in the November 1 edition of the Wall Street Journal with the following quote from their CEO: 

“Customers shouldn’t have to choose between renting online versus in-store, and they should never have to be without a movie,” said Blockbuster Chairman and Chief Executive John Antioco in a statement.

This is a smart strategy as it enables Blockbuster to leverage something Netflix doesn’t have - 8,500 stores located across 29 countries. It will ultimately lead to some positive word-of-mouth for Blockbuster, and a new competitive differentiator against Netflix. I, for one, plan to try this out over the holidays as the only downside to my Netflix subscription is sometimes I don’t plan far enough ahead to have the movie I want when I want it.

However, it is hard to imagine that this will lead to a long-term competitive advantage for Blockbuster. The next wave that will hit is movie downloading, which will solve the only real challenge Netflix has (the wait time). And Netflix is planning to lead in that wave. Check out Reed Hastings’ recent interview on 60 Minutes. And don’t get me started on how great of a job Netflix does in creating high switching costs (or “community stickiness”) with all of its great ratings and social networking features. Even though I will try Blockbuster again as a result of this promotion, it is unlikely I will dump Netflix.

What is the lesson learned here? Leverage your multichannel assets, like Blockbuster is finally doing, to earn “good profits”, especially in the face of a competitor acting on your source of bad profits. This will help offset the negative word-of-mouth that your bad profits have generated with positive word-of-mouth. Also, reducing your sources of bad profits now will help prevent disruptive upstarts in the future. This is much harder to do than it sounds, and the book The Innovator’s Dilemma does the best job of any I have read in explaining why.

Update: I just saw that Reed Hastings won the “Innovator of the Year Award” from the NRF (National Retail Federation), the parent of Shop.org.

Well, the answer to that question is something I have been thinking about ever since launching Bazaarvoice with Brant. Why do people take the time to write reviews? [We will announce next week that we served over 19 million reviews on Cyber Monday!] Why do people take the time (like I did this morning) to vote on community photos for JPG Magazine? Why do people take the time to label images Google has crawled? [Google’s top contributor, “wordgirl,” has labeled 1,335,500 images since they launched this only three months ago - that is a staggering 14,839 images per day since launch!]

The answer is actually more complex than you may think. It is a combinatio