Effective immediately, I will assume the role of executive chairman where I’ll focus 100% of my time on advancing Baynote’s technology vision and strategic development of products, customers and partners in emerging markets. Also effective immediately, Mike Backlund has been appointed president and CEO of Baynote.

Mike joined Baynote in 2009 as senior vice president of worldwide field operations, but I have worked with him in one way or another for more than a decade. I am extremely pleased to appoint an executive with his extensive operational and customer development experience to lead Baynote to our next stage of growth and beyond. Mike has more than 20 years of experience as both a CEO and senior operations executive within the software and technology industries. He previously held the role of CEO for Quorum Technologies, Inc. and Emagia. And as SVP of Field Operations at Interwoven, he was instrumental in driving annual revenue from less than one million dollars to more than 200 million dollars in three years time. His successful track record managing fast-growing companies and deep experience partnering with enterprise customers at every level of the relationship will be invaluable to Baynote.

In addition to partnering with Mike and the executive team on driving Baynote’s vision, I’ll remain Baynote’s chief evangelist. I will be just as involved in the blog (if not more!) and other forms of communication as I have been since founding the company in 2006.

This is an exciting new chapter for Baynote and I am looking forward to working with Mike to help our customers continue to deliver relevant and engaging online customer experiences.

After attending the event for four years, I’ve had the opportunity to see first-hand how the market has shifted over time. The discussions at eTail West in the earlier years were primarily about how to manage, measure, and increase transactions. But most retailers have this figured out by now, so their focus has shifted to maximizing their revenues in new ways.

Naturally as the market has matured, retailers have grown to be more concerned with customer experience and service, so it’s no wonder that the three consistent themes at this year’s event were multi-channel customer experience, personalization, and recommendations. Online retailers are looking for new ways to increase their revenues and to achieve better personalization and customer targeting. They are also looking for new ways to maximize revenues by deploying the recommendations they already have in place in a much broader sense. Now that retailers have reaped the benefits of traditional product recommendations, they understand the capabilities these technologies have to tackle the newer issues, such as navigating social elements of their sites and the ongoing quest to improve search.

Just as the market has matured, so has Baynote. Each year at eTail, we’ve seen interest in our approach grow. Listening to the conversations of the attendees and the other speakers this past week, it was clear to me that Baynote’s time has come as retailers hone in on providing a superior customer experience and ultimately how to create happier, more loyal customers.

Perhaps the best evidence of this was a survey I conducted during my presentation. I asked the crowd: “Raise your hand if you think your best salesperson can outsell your best customer?” The result? Not a single person in the room raised their hands. When I asked another question: if the happiest customers are the most important to increasing their revenues; almost every single person in the room agreed. This demonstrates just how powerful peer-to-peer brand advocacy has become to retailers and the bottom line.

I left Palm Desert thinking about what an exciting time it is to be involved in the e-commerce industry, and how proud I am that Baynote’s customers are setting the standard with more sophisticated personalization approaches that are transforming the customer experience as well as their online businesses.

P&G’s eStore was prompted by a mediocre year in online sales for the consumer goods manufacturer. According to a recent article by Andy McMains of AdWeek, less than one percent, or $500 million, of P&G’s $79 billion in global revenue last year stemmed from online sales via sites such as walmart.com and amazon.com. Through the eStore, P&G hopes to learn from consumers how to better market their products and improve online sales across all e-commerce channels. One of the main goals of this initiative is for P&G to learn about consumer buying patterns and share this customer intelligence with its retailer partners to boost sales.

eCommerce is unique in that Websites allow retailers to quickly identify consumer shopping patterns, and automatically adapt their merchandising programs based on this insight. This is simply not possible in brick-and-mortar stores. With Baynote’s technology, for example, retailers such as Urbanoutfitters.com and Bluefly.com are able to more quickly recognize even the most unexpected trends, such as consumers purchasing two seemingly unrelated products, and then personalize product recommendations in real-time. This improves the next shopper’s experience, builds loyalty and boosts sales.

Since most products are currently sold via retailers rather than directly by manufacturers, manufacturers are often left in the dark on the valuable data that their retail partners can obtain about consumer behavior. While brands have been able to utilize the Internet well to engage with consumers via email marketing, social networks, online product reviews, and a slew of other activities that require their explicit feedback, they have not had a direct link into the less obvious but often more telling data that ecommerce affords. This includes leading, often termed “weak” signals about consumer intent that can only be gleaned from the online shopping experience. Think clicks and hovers, not hard transactions.

This new online environment should enable P&G to monitor and respond to shifting consumer trends in real-time, and we are looking forward to seeing how their customer engagement initiative will change the overall online retail landscape. We predict that the insight gained from eStore will improve both indirect and direct sales, as P&G will be able to better collaborate with their distributers on why certain products are selling well, and how to improve upon the merchandising and online sales strategies. If managed well, the P&G eStore should also allow the manufacturer to bring innovative new products to market significantly faster based on real-time visibility into the online browsing behaviors of their customers.

The excitement reached a fever pitch on Dec. 7 when Google announced it would begin displaying real-time results in its searches.

It’s an electrifying time to be a part of the Web to say the least, and it’s nice to see real-time at the forefront of conversation in the media and at industry events I’m attending.

Given that Baynote is focused on mining real-time implicit behavior on the Web, I’ve been asked lately on numerous occasions what my perspective on the real-time Web is.  Rob Hof, previously of BusinessWeek, also recognized our leadership in real-time back in August, when he featured Baynote as fifth on the list of real-time Web start-ups, behind the likes of Twitter, Facebook and Aardvark.

My take? I believe we are on the cusp of a brand new Web, one that will be driven by the power to tap into both real-time explicit and implicit intelligence, as well as the Collective Intelligence of all Internet users. Although much of the recent excitement about the real-time Web has been focused on gathering and making sense of explicit feedback captured in published sources, such as Twitter, you cannot possibly observe the Web merely by looking at it or reading it. Further, ninety-nine percent of what happens on the Web is never written, never rated, never reviewed. It’s told through implicit behaviors in the form of mouse patterns, clicks and hovers to name a few. It’s told through intent.

In the real-time Web, you can’t just watch what people say, you have to watch what they do.

At Baynote, we are focused on the business use cases of real-time, providing companies with the tools to tap into the implicit behaviors of customers on their sites, and learn, adapt and take action automatically. This Collective Intelligence is reflective of the silent majority, not the loud minority. It is free of bias, and requires no manual processing or analysis.

As the fever pitch for real-time continues to grow, we look forward to helping companies become smarter, more personalized, real-time businesses on the much longer road to actualizing a truly real-time Web. We will continue to watch this trend carefully and plan to write more about the real-time Web for business here in 2010.

Stay tuned for more insight.

Coined by the National Retail Federation a few years ago, Cyber Monday offers retailers a way to organize sales and promotions in an online version of Black Friday, the Friday after Thanksgiving Day. The promising news for retailers is that Cyber Monday hasn’t typically been the largest online shopping day of the year, meaning this season’s peak is likely still yet to come.

I thought readers of this blog may also be interested in my guest article for BusinessWeek, where I share five rules that savvy online retailers already had in place heading into Cyber Monday. For those of you not yet incorporating these practices, fear not. They’re easy to implement and each can help your business year-round.

About 300 delegates, most of whom are returnees already working in China such as Robin Li of Baidu.com, were chosen, and I was one of the 18 representatives from the United States, and one of only four CEOs. A part of my function as a delegate was to attend the PRC’s 60 year anniversary celebration in Beijing on October 1^st. I was honored to be in such a momentous event, and was impressed with President Hu’s address to the delegates where he laid out his plan to focus China’s economic vision on innovation.

President Hu has engaged with the delegates in a similar way that Baynote applies its technology for our customers: He is taking wisdom of the crowds to make more well-informed decisions.

Here are some photos that I took that capture the essence of the celebration:

When I returned to Silicon Valley, I was energized and enthusiastic that the work we are doing at Baynote is making an impact beyond the borders of the United States. It was humbling to be surrounded by some of the smartest minds in the world, from scientists and professors, to entrepreneurs, who have all made a strong impact on technology innovation.

My visit to China was followed by a meeting at Baynote’s Cupertino offices with Mr. Li Yuanchao, head of China’s Organization Department of the Central Government and member of the Central Committee Political Bureau, and a delegation of several Ministers and the Chinese Ambassador to the United States. Mr. Li toured Baynote as well as four other Silicon Valley companies, including Cisco and Google, during his brief trip to California. The purpose of his trip was to learn from us how to operate technology-focused companies that are economically successful and technologically innovative so he could take what he learned and apply it to China’s plans.

Included below are some key points that I made during my presentation to Mr. Li. My goal in this presentation was to give him a better sense of what entrepreneurship is all about, and to pass on some lessons that I have learned over the years that are applicable around the world.

• It’s all in the people. Get the right people on the bus and the wrong ones off, and then decide where to drive. You need talents with experience, education, but more importantly with passion!
• A startup is a process. Research the market in the real world by talking to potential buyers and tapping into the wisdom of crowds. Don’t take no as a bad feedback. On the contrary, too many yes’s mean caution.
• A few things must be created from day one: A core team, leapfrog innovations, and a culture that will serve as the foundation throughout the company’s journey.
• It’s ok to fail many times. Without moments of despair, you don’t have a lasting startup. Take a flywheel iterative approach to anything: market, technology, business model…
• In order to succeed, you must have a strong desire to learn and change: Be open to learning from your peers and taking constructive criticism, as it allows for growth. Did I mention the wisdom of crowds?!
• Always challenge the conventional norm.
• Be open and direct. There is no place for politics in startups.

Mr. Li’s visit encouraged me that President Hu’s initiative is very real and imminent. We may see a Silicon Valley in China in the future, a great thing for the international collaboration for technology development. I look forward to seeing how Baynote’s input will be applied to China’s efforts to improve technology and science – not only throughout the region but around the world.

According to Gartner, a pattern-based strategy “provides a framework to proactively seek, model and adapt to leading indicators, often-termed ‘weak’ signals that form patterns in the marketplace.”  For the past several years Baynote has been committed to helping companies identify these patterns with technology that lets them tap into the collective intelligence of customers visiting their websites. This is something that transactional based systems such as business intelligence (BI) and complex event processing (CEP) simply haven’t been able to deliver. Here’s why:

1) For years BI, CEP (more recently) and other related technologies have helped organizations become much more efficient by automating their interactions with customers. However, in the process of creating huge economies of scale, they forced companies to lose the “mom and pop” touch that consumers expect when they walk into a local hardware store or restaurant. In failing to create digital mom and pop experiences, online retailers and publishers have placed unnecessary emphasis on promoting popular products and content, thereby losing out on profits to be gained from merchandising their long tail products.

2) In addition, these so-called “predictive” applications have historically prioritized the wrong set of indicators, often identifying consumer trends weeks, if not months, after the fact. For example, e-commerce transactions lag other more relevant indicators, such as online comparison shopping, by months. Only by tapping into the power of the collective is it possible to see early signals, spot trends and develop strategies around them before your competitors catch on. This holds particularly true for long tail products. Our customer US-Appliance tapped into the implicit behaviors of its website visitors to merchandise colored washers/dryers months before Home Depot and Best Buy began promoting similar products in their stores.

In Gartner’s recent report, entitled “Introducing Pattern-Based Strategy”, they view “the collective” as being critical to developing a pattern-based strategy. We couldn’t agree more with their position:

The collective comprises individuals, groups, communities, mobs, markets and firms that shape the direction of society and business. The collective is not new but technology has made the collective more powerful — and enabled change to happen more rapidly. The explosion of social software has enabled groups and individuals to rapidly form and rally to a cause — often resulting in significant societal changes.

The result for business is a cacophony of rapidly evolving demands, expectations, inputs and transactions, as well as an opportunity to not only react, but to seek signals of change from the collective. Market trends, some subtle, others strong, are masked by noise, and many enterprises are failing to proactively detect the patterns they rely on to direct future strategy and support investment decisions. In addition to failing to detect these patterns, enterprises are not utilizing new resources to proactively seek signals of change nor do they understand their power to influence individuals and communities.

Val Sribar, group vice president of Research at Gartner, sites Amazon’s and Netflix’s use of recommendation engines as good examples of organizations leveraging collective intelligence to support their pattern-based strategies. Sribar agrees with Baynote that recommendation engines identify new patterns in behavior as customers browse and purchase. While Amazon and Netflix are highly popularized cases, we’ve helped hundreds of other well known brands tap into their collective customer networks to significantly increase revenue through cross-selling and upselling, and higher customer loyalty.

We’re excited to see Gartner take a leadership position on this important issue and look forward to working with them and our customers to bring best practices related to collective intelligence to the forefront of modern business strategy.

The report, Americans Reject Tailored Advertising shows that 66 percent of adults said no to tailored ads. Not only that, when informed of specific behavioral targeting techniques that marketers employ to create the ads, even higher percentages — between 73 percent and 86 percent — oppose tailored advertising. Those techniques include tracking behavior on websites and in retail stores.

For a more detailed analysis of the findings, you should check out Stefanie Clifford’s coverage of the report in the New York Times.

We’ve been talking about the pitfalls of behavioral targeting for years, so it’s nice to finally see some national research that tells marketers what consumers actually think about this shady technique. In this age of identity theft and mounting concerns over privacy in general, a practice that proactively profiles a user — perhaps over the scope of many Web sites and over a period of several months — will sound alarms even among the least conservative of us.

Beyond privacy concerns, there are bigger issues with behavioral targeting related to accuracy and quality, that many marketers still don’t understand. Traditional behavioral targeting struggles precisely because it tries to discern what I want now based on my past behaviors. Consider the impact of focusing on historical interests instead of current intent: If I bought a gift for my niece on Amazon.com last week, I certainly don’t want to be bombarded by ads for similar products that probably aren’t relevant during my next visit.

Another way to think of this problem is to consider the idea of roles or what personalization systems might call “profiles”. Humans have far too many roles in life for a profile to possibly predict what a user wants on any given day. A woman shopping for baby clothes, a tie for her husband, and a gift for her sister may appear schizophrenic because she is acting in three different roles — mother, wife and sister. What do you show her next? Tossing strollers ads at her isn’t going to be effective now that she’s shopping for a new cocktail dress for herself.

This is the pitfall of profiles. In a given month, an individual will have thousands of roles. Knowing my past is not necessarily a better way to predict my future. In fact, this phenomenon has been known by psychologists and other scientists for years — humans are animals of context and situations, much less than of historical profiles or roles.

Enter Intent-driven Targeting

An alternative that solves the issues with both privacy and effectiveness is one centered on understanding the users’ intentions, instead of their clickpaths or profiles, and pairing that knowledge with specific content, product and advertising recommendations. This approach relies exclusively on the collective wisdom of like-minded peers who have demonstrated interests or engagement with similar content and contexts.

The concept of profiles is completely removed in this case. Instead, through understanding expressed or implied intent, content appropriate to the user’s current mindset can be delivered.

Most importantly, it kills two birds with one stone: Users get useful, accurate recommendations and ads, while still avoiding the whole privacy mess.

Rajeev was instrumental to the success of Baynote from the very beginning, even before we had a name for our company. He advised us why Google is a partner instead of a potential competitor. He offered many unique insights to the technology and business in the last five years. Two weeks ago, we had the fortune and luck to sync up with him one last time. He was so live, full of energy and ideas. Our one hour Palo Alto coffee talk went on and on. He was so excited about his planned trip to Wimbledon with his family this summer… And as usual, he was there to give unconditional help and made 7 connections after our chat…

Our thoughts and the thoughts of entire Baynote team, advisers and board go to Asha and the kids. Rajeev will be greatly missed physically but he will live on in our heart, spirit and via our technology!

Jack, Rob and Scott

Yesterday at Baynote we had the privilege of a visit by a delegation from China’s Consulate General office in San Francisco including the Consul General himself Gao Zhansheng.

We initially discussed Baynote’s platform and why its peer-driven recommendations are particularly important to business and society at large. This lead to a more philosophical conversation regarding crowd-wisdom and how out of touch both big business and big government can be. We discussed how so many of the specific problems which have lead up to today’s financial problems were matters of disconnect. You’ve heard me say it before but people want the connection they used to have with “mom & pop” businesses. Likewise, they probably also want the connection they get in “town hall” interaction with government leaders. The Chinese officials teased with an old saying in China: “connect the crowd and serve the people.” Except that we all want to do this online now.

Despite the difference in our economic systems and the fact that these weren’t technologists, the concept of “the crowd is free” really resonated with them. They understood the limits of experts. Someone on their team asked about the applicability of crowd-wisdom to government sites as a means to be more responsive. Except for NASA.gov, there are few U.S. government websites doing this….yet. It’s coming, it has to.

When I was telling them we had Baynote on roughly 180 sites, the Consul General joked “That’s too bad, I wish it were more, I have trouble finding what I need on the web, you need to get out onto more sites.” “We will, they are coming,” I responded.

“You know Chairman Mao understood this,” someone commented. “He said ‘Crowds have infinite power.’”

While we didn’t explicitly talk about the massive bailout announced this Sunday, it was clear to me by the tone of our conversations that the team from the consulate were looking at today’s climate as a global issue. They wanted to know what it would take for a business to make it in this climate, not just in China but here in the U.S, and what kind of governmental policy or innovative technology they can help to push.

I explained that it’s never easy, but that starting a business in this environment is incredibly tough right now. It’s winner take all — you would have to be #1 to make it here. The upside is that there are a lot of great lessons to learn from the wave of “nice to have” Web 2.0 technologies that can’t demonstrate ROI. Be innovative, address a real market problem, and be able to demonstrate ROI quickly with very little risk and you could thrive. Baynote is fortunate to be in the position we are in today, and much of our success comes from following these rules.

At parting, they presented us a nice set of gifts — a scale-down Terracotta soldier, a couple of DVDs for the Beijing Olympics… The Baynote team was truly impressed by the officials. They were smart, very knowledgeable, curious and extremely passionate about innovations and technologies — not normal traits of any diplomats. We wish them well!