Then comes the news that Playdom just raised $43 million on a whopping $260 million valuation.  Playdom is the dominant game developer on MySpace (you remember MySpace, don’t you?), but is a late-comer to Facebook.

And, of course, there’s Zynga, the company responsible for countless wasted hours at offices around the world with Texas HoldEm Poker during Facebook’s early days and, more recently, with Farmville (thank god for the ability to block notifications on Facebook, btw).  Rumors continue to circulate that Zynga has its eyes on a possible IPO next year — and even a $1 billion valuation has been thrown about (cue Dr. Evil with pinky at his lips).

All of these companies are killing it with a free-to-play model, largely based on micro-transactions.  A few cents here, a few cents there… when you have millions upon millions of people playing, those pennies add up.  Tim Chang, a principal at the venture capital firm, Norwest Venture Partners, estimates that the three companies’ combined annual revenue run rate stands at about $350 million right now and the industry as a whole may be at $1 billion.  That’s a lot of  farming seeds and pet supplies.

Now, I’m a guy who can’t bring himself to buy virtual goods to advance in a video game (hey, I’m not cheap… financially responsible is how I see it), but I have seen enough to know there are plenty of people that will spend plenty of money.  In a past life, I helped to bring the GOLF.com Pro Challenge, a golf video game, onto Facebook.  Operating that game, I saw first hand just how much people would spend to play.  We even had some players forking out $100  for a virtual golf club.  I may not buy virtual goods, but I’m definitely a believer in virtual goods and micro-transactions as a revenue model.  Apple also recently made it possible for developers to sell virtual goods within free apps.  Many see this as potentially the beginning of a very lucrative market for iPhone games that are free-to-play but, which, generate revenues from virtual goods.

All of this adds up to this being a fun time to be in the video games business.  And a fun time for playing video games.  I’m looking forward to seeing more, better games I can play for free or almost free, like the multitude of $0.99 iPhone games (hey, stop calling me cheap!).

But what about you?  C’mon… how much money have you spent playing “free” games?

This is a week of design for me, meeting with two talented design practitioners in Boston who are running a very successful company, talked to the folks running two of the top design schools and interviewed 4 designers respectively from London, Brazil, LA and Toronto. And catching with my design reading on the weekend.

UK has been a big believer that design can solve many problems and forget the role of economics in many of these issues. People should not forget the advise of architect William Pena: “To put it positively, a social problem calls for a social solution. After there is a social solution then it can be part of a design problem for which there will be a design solution. You cannot solve a social problem with an architectural solution. Let me add another category of design, call it “Social Design”.

Design, design, design. Why is suddenly design is so popular? Why business leaders are suddenly talking design? What does design has to do with strategy? Other than sexy products, design thinkers are aspiring to solve the big problems that face modern society. From sustainability to schools, poverty to healthcare, it’s the future perfect.

One very popular concept is co-creation. Here’s an example of it in practice. Architect Will Alsop was asked by the British non-profit organization Rideout (Creative Arts for Rehabilitation) to rethink the concept of prison. If Idea Couture is doing the project, we will start with ethnography. We will send in a team of anthropologists and human factors to spend a week in prison. I am not sure we have people in one of our the offices with that vertical experiences voluntary or involuntary (unless I don’t know).

What Alsop did was he handed large sheets of paper to a group of inmates and asked them to draw a new cell. Each participant (minimum of 15 years) drew the cell in which he was already incarcerated. He asked if they would like more space. Next, he asked them to draw what they’d like to see from their windows. They all drew gardens. In prison, there is time to watch things grow (not sure what they grow in prison). Alsop’s conceptual solution uses an old space-saving technique: build upwards (photo below).

In a series of brightly colored towers, The Creative Prison (yes prisons can be creative and may be Richard Florida would be interested in doing a study too) provides inmates with more individual and collective legroom, surrounding each structure with deep moats of greenery: working gardens, training areas and sports facilities. Next, he tackled the community issues. Rather than caging inmates in massive cell blocks, he proposes units designed to house groups of up to 14 prisoners. For socializing within a wider community. The crazy part is he proposed to add a restaurant, barber shop and radio station. He did not include a spa. I would add an XBox room for them to play Grand Theft Auto, everyone there should beat the game in 15 minutes.

The London Design Festival will begin in a week and this is always one of my favorite events, unfortunately I cannot attend this year. Royal College of Art will be holding two major exhibitions, one is exploring new ideas in solar energy and he other is people-centered design. EPFL+ ECAL Lab, a new Swiss initiative to foster innovation at a crossroads between technology, design and architecture is presenting Sunny Memories.

Sunny Memories is a project that explores the potential of a newly invented technology: dye solar cells. Inspired by photosynthesis in plants, the technology harnesses solar energy with flexible, colored and even see-through surfaces. Over 80 students from the Royal College of Art’s Design Products department, the California College of the Arts, the University of Art and Design Lausanne and the Ecole Nationale Supérieure de Création Industrielle in Paris took part in the project, under the guidance of top-level designers. Lots of design minds working together.

Concepts include a letter box which sends an e-mail when the post arrives; a bench which lights up public parks to make them safer and more welcoming; a signpost for cycle tracks which provides useful information to users; a charger enabling homeless people to recharge a small radio on the street; a radio where the cells capture almost all of the light spectrum; while a fruit bowl suggests a fundamentally new way of positioning solar cells.

Another great design idea is the Dream ball, a brand new soccer ball which is made by recycling famine relief packaging. Since a lot of children in third world countries cannot afford a soccer ball, they usually use pop can and other to use as soccer. A team of Korean designers observed that all aids provided by NGOs are usually packaged in boxes whether they contain medication, food and consumer products. Unplug design came up with an idea that can reuse these boxes to turn them into different types of balls depending on the size of the boxes. They can be made by simply cutting the perforated cardboard boxes and weaving the pieces together. Hats off to Hwng kung chan, Jin song kyou, Lee hak su, Han min hyun and Jun jin of the Seoul based design studio Unplug.

The ultimate innovation challenge comes to America’s doorstep. It’s knocking, banging, kicking and screaming. Someone give that kid a lollipop and get to work.

But there’s so much to do!

Hmmmm…

• the economic crisis has destroyed banks, jobs, academic endowments, homes and more;
• there’s massive (and growing) federal debt;
• the education system is painfully failing (19th in the UN’s 2008 Education Index just below Lithuania);
• military spending is outrageous (more than $700 billion annually, about 50% of worldwide expenditure);
• the Social Security program is massively criticized (currently the most expensive government program in the entire world);
• the penal system puts 1 in every 18 men in the US behind bars or under surveillance (the highest incarceration rate in the world, about 1 in 30 or ~7.3 million adults are in prison, on parole or on probation);
• and let’s not forget about the impending doom of climate change that is inevitable at the current rate (or lack) of attention.

Wow. Just writing all that was seriously depressing. There’s a lot more of course, such as privacy, significant issues at the Pentagon, corruption in agriculture and gay rights, but I’ll stop here because it’s almost impossible to be exhaustive and frankly it’s a lot to stomach, even for a Canadian. What’s worse is that I haven’t even gotten to healthcare yet. While all of the problems noted above are big (astronomical?) challenges, healthcare is everything.

Last week, Obama held a “town hall-style” event to discuss and address critical healthcare issues. While I’m not a big fan of such functions, I know that they can serve important purposes. I usually object to the ruse, assuming that nearly every detail was planned and designed only to simulate the appearance of impromptu discourse. But it did not bother me this time. The reasons are two-fold: first, healthcare is such a serious topic right now for the US (and a growing fascination of mine), that I’ll accept anything to help the medicine go down (pun intended). Second, I agreed with a lot (not all) of what Obama had to say. Much of it was aligned with progressive thinking on the issues, borrowing ideas from many leading thinkers, both foreign and domestic. A lot of things were said, and overall his perspectives amounted to value-based improvements in healthcare through strategic reinvestment and innovative restructuring. Will it work? Time will tell. It’s massively complicated. But I liked that he is asking new questions and approaching the problems with innovative and integrative solutions. I like that Obama is making healthcare the centerpiece of his domestic agenda. Mr. Change needs to sprinkle some change-dust over the country right now as it braces for impact. Long overdue, “healthcare reform” ought to be relabeled nationwide healthcare rethink.

Without your health, everything fades and becomes somewhat insignificant. Just think of one of the issues noted above, and then consider it in light of a cancerous tumor, heart or Alzheimer’s disease. Sorry to be crude, but it would be tough to buy stocks online, play with your children, grill a hamburger or steer a Ford F250 pickup truck if you can’t lift your arms.

Take care, healthcare!

US healthcare is in shambles. About 50 million people don’t have insurance, which is an embarrassing statistic for such a wealthy country. Unless you’re helpless, a child, or above 65, there’s really nothing you can do but get insurance at an average of 18% of your income. And if you think that’s bad now, just wait a bit. Some estimates predict that 1 in 3 of the next generation of Americans will develop early onset diabetes. That’s 1 in 3. And don’t forget about the baby boom generation of 76 million people born between 1946 and 1964. They are quickly approaching their golden age and will make current socio-economic difficulties seem relatively trivial. The scale of operations that will be required to accommodate their healthcare needs is nothing like what the US has now, and the boomers have just begun retiring. We’ll see how things result thirty years from now. Be sure to read (or upload to your brain) my thoughts on this issue then!

The problems with healthcare are multi-dimensional. Costs are rising, everywhere; files are often poorly maintained; preventative behaviors are barely supported and often countered by adjacent industries; many reports show that pharmaceutical companies spend far more on marketing than they do on research and development; physicians endure malpractice lawsuits at a troubling rate; patients hesitate to get checkups and depend more on the advice of friends than their doctors. These are just brief examples of many pains in the industry. Serious action needs to be taken within all divisions of the US healthcare ecosystem to not only remedy today’s troubles but to properly anticipate what lies ahead. Practitioners, insurance and pharmaceutical companies, public health bodies, patients and the FDA all have work to do. It’s time to step up.

Culture correction: a return to value-based investment

We’re not doing anyone a favor by mincing words. Without clear and accurate language, we will have trouble making progress at our true potential rate (whatever that is). What I’m driving at, is that real healthcare is everyone’s business and is integrated into every aspect of life. The US needs to deploy multifaceted resources to support the rethinking of healthcare. It’s not just something for the politicians to talk about, or insurance companies to sell. healthcare is something to be discussed with children and the elderly alike. It’s something to teach in school, where the insights of prevention and early detection – the golden bullets of treatment – can be instilled in young Americans. Healthcare requires sensitivity training for all, not just industry-related practitioners. It is complex and involves a diverse cast of characters that serve critical roles in an evolving ecosystem.

Some people say that creating real change requires a paradigm shift within a generation of conscious, aware and determined individuals. By facilitating positive and productive discussions of healthcare throughout society, people will be better equipped with the energy and resources required to make the impacts that are so badly needed. Innovation will be required around products, services, business models and organizational structures, and someone’s got to do it.

So Adam, a lot of stuff on this topic is being spoken about, what’s wrong with that? Well dear reader, we often forget the real end-game, so to speak, of healthcare: patient outcomes. This isn’t spoken of enough. This is the notion of real value, as Obama correctly alluded to in his event last week. He spoke of many modern ideas that I heard Michael Porter describe last June at Rotman (the University of Toronto’s MBA school).

For those who don’t know, Porter is a famous business strategist who co-founded Monitor Group, teaches at Harvard Business School and contributed the significant “five forces” model used by academic (and professional) institutions all over the world, among many other notable insights. In his talk, he explained that there is not enough focus on real value when it comes to healthcare. There’s a lot of talk about lowering costs, central patient indices, and universal coverage. However, it is rare that the question is framed properly, taking aim at what the true goal ought to be: improving patient outcomes per dollars spent. This is real value. This is a real goal to strive for. Would we permit (even welcome) higher costs if cures were reliably effective and lasting? Probably. To be distracted by other issues and not focus on illness prevention, reduction, treatment effectiveness and quality is to make a huge mistake for everyone. Twenty-first century thinking about healthcare in the America ought to begin with asking the right questions.

Is that your final question?

Here are a few very wrong questions, in my opinion, as put forth by Karen Tumulty for Time magazine in her article “The Five Health-Care Dilemmas”. (I picked three.) These questions illustrate the misplaced attention that exists on this topic in the US today. (And I’m not going to say anything about her misuse of the word “dilemma”, because life is short and I have to pick my battles.)

“Will there be a big, new government system?”

Oh no! Run for your lives! It’s the big bad government wanting to give you an affordable alternative to private insurance coverage! Ruuuuun! Just the way her question is phrased makes me cringe. This is a great example of a wrong question. It focuses on partisan nonsense that does not address or call attention to the real issues. Here’s my version: Can government-run systems improve the value of healthcare for Americans? Again, value being patient outcomes per dollars spent. Now that’s a real question. I’d like to see that kind of question be asked in Time magazine instead of one that instantly evokes chatter of socialist motives and such.

“How can a nation already deeply in debt afford healthcare reform too?”

Here’s my revised question: How can a nation already deeply in debt not afford healthcare reform? A 2006 article in the Health Affairs journal reports that from 2007 to 2017, total annual US spending on healthcare will grow an average of 6.7%, insurance costs are rising faster than wages or inflation, and about half of bankruptcy filers in the United States cited medical causes in 2001. Healthcare reform ought to lead to lower costs in the long run. The goal is to invest more soundly, more thoughtfully, into better technologies and better structured systems. Rethink the question.

“How will we bring down costs?”

Ouch. I knew this one was coming. There’s no point trying to lower the cost of healthcare that isn’t effective in the first place. I don’t have just one way of rethinking this question, I have several other questions: Do the experts even know which costs to bring down? Why are the costs so high in the first place, and are the reasons valid? Are public expectations of real costs skewed by lack of correct information? Is the current system designed to best meet actual contemporary needs? If a bit more was spent to create more positive patient outcomes, would that lower costs in the long term? Similarly, would benefits be earned in the long run by compensating practitioners based on actual outcomes instead of the quantity of prescriptions filled or patients seen in a week? Why are the administrative costs of private insurance companies so much higher than those of Medicare as a percentage of expenditure if government is so inefficient? Any one of these questions would do. I could go on for hours, but you’ve come far enough. And I thank you for that.

If there’s one thing that I know for certain, it’s that I don’t have all the answers, nor all the questions on this topic. If there are two things for certain, it’s that change is possible, necessary and inevitable, all at the same time. Innovation will erupt of this mess, although it may require considerable investment, deep risk and many mistakes along the way. Obama and the rest of the system won’t be perfect, but I like that they are asking new questions.

Why not see this issue for what it really is? Why delay in making healthcare the defining triumph of the early 21st century? The US has incredible capacity to achieve successful value-adding healthcare reform, but before that can happen, the nature of how it is thought of and discussed needs to be refined and retooled. Healthcare is a complicated issue and ought to be respected as such. Nobody in the world does it really well, but some do it better than others. Americans love competition, and I believe that with some solid rethinking, frank discussions and deliberate investment, they’ll meet and exceed the challenge.

Although it might be difficult to establish a clear correlation between the implementation of social standards and profit making, corporations could aim at raising their reputation by implementing social standards, in order to possibly gain profits – or at least not to make losses- from this reputation, at a later point in time.

Let’s be clear there are 2 types of CSR-CSR as marketing tool (British Petroleum) and CSR as part of a business strategy (Patagonia). BP’s marketing campaign, which is all about looking for alternative energy sources, makes the consuming public feel good about purchasing BP products. But if BP had redeployed billions of dollars into environmental investments that yielded no profits, and its stock plummeted, one would certainly expect investor to dump their stocks. And if they don’t invest in alternative energy as they promised on the adv, they will lose credibility with the public, but does it hurt their profits? Is the credibility of an oil company important?

Let’s try to challenge the idea of corporate social responsibility, while it is absolutely reasonable to expect that corporations should be “responsible” such as by creating quality products and marketing them in an ethical manner, ensuring they are trading fairly with their third world suppliers, operating in compliance with laws and regulations and treating minority shareholders and investors fairly. But the notion that the corporation should apply its assets for social purposes, rather than for the profit of its owners, the shareholders, is irresponsible. This is where the challenge is.

B-School 101, a corporation’s goal is to maximize shareholder value return. They can use solar power for the offices or sponsor local charities. But it would be irresponsible for the management of a company, whose stock these investors purchased, to deploy corporate resources for social causes. Here is a litmus test of the market for corporate social responsibility. For example, Nike could sell a pair of sneakers for $90 and another for $120 with the extra $35 goes to promote a cause or provide micro lending etc. This is using the market to decide what’s best. (The problem should that $30 goes to Nike profit instead and $5 goes to a charity?)

If consumers wanted to pay the extra $35, voting with their wallets for a cause they believe in, they could. I don’ think this works. Consumers want to contribute, but want the freedom to decide and want to make it personalize. Otherwise it is called a tax. Consumer wants to have way to decide, socialize and sometimes exhibit their causes, individually and not through corporations. They certainly do not expect the for-profit corporations in which they invest to deploy corporate assets for social causes unless it helps with business performance.

Management’s job is to invest in projects that drive growth, profitability, innovation, and anything else that drives the shareholders’ return. The question is what if a project creates a second or third bottom-lines and as a result slightly reduces ROE? It is not easy to make these calls. I think the line between using CSR as a marketing tool and as part of a business strategy will blur, companies will slowly realize it is absolutely essential for them to practice CSR in order to win the hearts and minds of customers and employees. Making a greener product won’t do the job anymore. They need to apply the 4Ps of People, Planet, Purpose and Profit as the new mantra management.

Image Source: http://www.kenston.k12.oh.us/khs/academics/business/img/harvard-business-school.jpg;

1. It’s just good business to be sustainable Reducing consumption is good for business and good for the environment. Dell is walking the talk with reductions in waste from manufacturing process and packaging. Mattel has reduced unnecessary packaging by redesigning the boxes that toys come in – no longer do they use the little plastic twist ties. Barbie and Ken are held in place by pop out cardboard slits made in the external box.

2. Customers drive requirements
Listening to consumers and solving consumer’s problems came across as the number one priority. Consumers vote for business practice with the dollars they spend. Organizations can use this basic premise to do two things. 1/ Redesign products and services that don’t meet consumer needs from a quality, price and sustainability standpoint. 2/ Look for those needs that are unmet, unarticulated and underserved and solve for x. This is where true consumer innovation takes place.

3. The reduction of risk is a key consideration in any operation – service or manufacturing
77% of Starbucks coffee is procured from free trade sources. While they spend a more for their green coffee, the reduction of supply risk is factored into the business model. Going with a cheaper source doesn’t guarantee translation to the bottom line if there is risk that the source will be cut off. Ben & Jerry’s mission of social and economic justice is well known. They have been a model for sustainability with their cow to cup philosophy. Neither company has sacrificed quality with their practices and as premium brands, can command higher price points from consumers.

Smart companies will find ways to weave sustainability into their operations – inherently lowering cost and delivering consumers economic and experiential value.

Think about some of these statistics presented by Jez Frampton of Interbrand at the opening plenary tonight:

• 95% of consumers say they would consider buying green products
• 25% actually do buy green products
• 45% purposefully don’t

Look at that last statistic. Why would a person choose NOT to buy a product that is better for the environment? Is there intent to destroy our planet? No – I would venture that consumers have been disappointed by green products – they have either performed worse and are more expensive. That is not a sustainable strategy – especially in our bleak economic times. Firms producing products and services must understand that consumers expectations are high. Recycled tissue shouldn’t irritate my nose. Environmentally friendly detergent must clean my clothes as well. It’s just not good enough to slap a “green” label on products and services and expect it to be a differentiator on its own.

To appeal with the masses, sustainable products and services MUST offer the same standards as other products. Quality, performance and price come first – sustainable, green, environmental friendliness are added benefits and eventually, should be a given. The economics of sustainability must align with a consumer’s personal economics and value. Some examples for sustainable experiences include:

1. Cleaning products made from all natural ingredients found in the home (baking soda and vinegar)
2. Small living spaces
3. Local, in season produce
4. Car sharing and car pooling

There are so many ways consumers can choose to be sustainable AND economical. Today, I rented a car to drive down from San Francisco to Monterey. I’d reserved a compact car for cost and fuel efficiency. The person at the counter told me I could get a hybrid car that was slightly larger, more comfortable and give me better the mileage than the compact – all for $4 more. It was a no brainer – the experience value of the hybrid far outweighed that of the compact car.

Sustainability simply must be sustainable economically to gain traction. Green energy must become cheaper, better and more available than fossil fuel energy. Green manufacturing must produce a quality product that rivals non-green product. Green service must be just as good as non-green service. There will always be a segment who can afford to choose sustainability – but to gain momentum with the general populous, the design of sustainable products and service must take into consideration consumer needs and expectations to service demand in a responsible way.