facebook,deal,new york times

Why the New York Times doesn’t need Facebook

Know the value of your assets. 

I was reading this article on TechCrunch about the New York Times making a deal to allow Facebook to “host” its “content” for free. And I had multiple problems.

The writer (Tom Goodwin, no less) asks:

“So does the New York times [sic] see this as free content marketing to gain subscribers, or as incremental advertising revenue? Only time will, and maybe they don’t even know?”

Once you’ve parsed that into English it seems very clear the NYT doesn’t have a clue. If it did, it would not be giving away its prize assets and brand equity to someone else.

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The coffee entitlement

Why prices are elastic

Here’s one. A friend complains on Facebook that it costs 14 dollars for a coffee from room service in the small hours at his luxury Chicago hotel.

To be fair it’s just a humblebrag. But someone bites: “Why not just go out to an all-night diner?” The reply comes: “I’m trying to work, plus it’s minus 11 degrees out there.”

Dude—that is why your coffee costs fourteen bucks.

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Troubled Fnac unveils new strategy

Fnac’s chief defect is that it sells things people no longer buy …

French retailer Fnac has seen its operational profits halved, according to a release. The retailer blamed a lack of elasticity in its cost structure along with pressure on margins due to a strong drop in sales of electrical and electronic goods. To address this, Fnac has announced a new plan, which it is calling Fnac 2015. The plan involves cost reduction moves as follows:

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What’s left of Sara Lee?

Can you divest non-core assets if you don’t really have a core? …

US food and beverage group Sara Lee has sold its North American coffee business to JM Smucker for USD 350 million. The business, which generated USD 285 million in sales this year, was part of the international beverage business the company spun off in January. In a statement, Sara Lee executive chairman Jan Bennink said the sale to the maker of Folgers coffee was part of the Sara Lee’s “mandate to create the strongest possible pure-play company.”

Comment: Although the split earlier this year was clearly a precursor to a divestment, I was mildly surprised to learn there was anything left of Sara Lee to sell.  It got out of apparel back in 2006. In 2009 it sold its personal care business to Unilever. Last year it sold first its North American dough business to Ralcorp, then its fresh bakery operation to Bimbo. It also sold off its Spanish bakery and French dough businesses. The story raises a couple of questions. The first is: is it wise to divest non-core assets if you don’t really have a core? Does Sara Lee have meat at the centre of its brand equity in the same way that Tyson does? I’m not convinced it does, although meat is more or less all it has left to “pure-play” with. The second is: what are discarded Sara Lee assets ultimately worth to their buyers? Grupo Bimbo — which paid close to USD 1 billion for the bakery operation — admitted Monday that it saw “low growth” ahead in the Sara Lee units it acquired. Either: Sara Lee is a company whose assets aren’t up to much; or it’s a company that doesn’t really know what it’s in the game for; or it’s getting stripped piecemeal by shareholders upset at net profits of only USD 642 million on sales of USD 10.8 billion. Could all three be true?

Photo credit: Takeflight Design

The Great Correction: How the Euro Crisis parallels our worst business models

Short-term thinking will send us all off the cliff in the long run …

Not too long ago I sat in a meeting with a company CEO, who was outlining the (let’s call it) strategy for the upcoming year. The model was this: greatly increase service fees, accepting that there would be significant attrition in the number of clients willing to bear them;  then persuade the remaining clients to pay to fund products which would then be made available for free to those who didn’t pay for them. A tough sell, you might think.

During this time, costs would be controlled by reducing the number of services offered in the areas where the company was already successful and well differentiated. Resources would also be scaled back here. This would both reduce revenue streams in the near term and possibly force an exit in the long term.

To recap: destroy or damage existing revenue streams and put all the company’s eggs in the basket least likely to bring in new money. Now, not only would that model fail but it had failed before, spectacularly. The answer to that failure, rather than to re-evaluate the model, had been to divert money from something that was working to pump into further attempts — and to keep pumping to the point at which the funding sources dried up.

As an analyst, it was my job to point out the flaws in this strategy and warn about the giant cliff looming, but the advice went unheeded on that particular occasion. Here’s why. The CEO was rewarded (richly) in the short term, not the long term. If he implemented the board’s flawed strategy he, personally, would make a lot of money now, not in a few years time. Therefore it didn’t pay him to reflect on what could happen to the business and its staff in the long term.

Now I read this article by Paul Krugman about the Euro crisis and I have to chuckle. Except it’s not funny. The notion peculiar to lenders that interest should be highest for borrowers who can least afford to pay it — on the basis that the “risk” is greater — is a masterclass in short-term thinking. Or stupidity, as I like to call it. The punitive rate more or less obliges the borderline borrower to default. They are ruined but hey, they paid so much interest on the repayments they did make that the investment is recouped, so who cares, right?

Except that if your business model is to destroy your source of revenue, eventually you will have no one to sell to and they will have no money to buy with. Let’s call that — oh, I don’t know — how about recession or global financial crisis or depression. As with finance, so with business. Killing the goose that lays the golden eggs hasn’t been a viable model since Aesop. And yet people are still getting paid fortunes to implement it. People are calling our current times “The Great Correction” : but unless the blinkered short-termism that characterises this particular incarnation of capitalism is corrected, that name will remain as vacuous as it sounds.

Life without Steve

 

I don’t want to clutter the web with my addition to the obits for Steve Jobs, who died earlier today. As I sit typing on my MacBook Pro, listening to iTunes in a café in central Paris, using a wifi connection I found using an iPhone app, I hardly need remind anyone of the impact Mr Jobs has had on our lives.

When I left university no one had a computer. I learned computing on an Apple Mac — a giant beige box — because I was apprenticed to a graphic designer. The Mac was then known as an expensive, exclusive professional tool for media and creatives. You couldn’t get one on the high street: reps came. In the Mac-related magazines I bought, Jobs, by then long gone from the company he co-founded, was a dirty word, routinely drubbed as a loose cannon. Friends mocked me for my geeky Mac obsession — which they saw as self-consciously alternative and “creative” — even as they rebooted their PCs after MS Office crashed for the eighth time and their hard disks had been eaten up by worm viruses and adware.

By the time I had saved up to buy a second-hand Mac, Apple as a company was near death — victim of its own arrogance and attachment to vertical integration — and it looked as though it would go the way of Betamax. Then we had the second coming of Jobs, the birth of the affordable, trend-setting iMac, the iPod and the regeneration of a brand that today dominates our daily lives. Gradually, the desirability of Apple products permeated public consciousness and those who had mocked a few years earlier now boasted. I knew Jobs had won when status-conscious corporate types started with the “sent from my iPad” rather than the “sent from my Blackberry”.

Here’s what I want to take from this. The sacking of Jobs from his own company and his subsequent return — not only to rescue it from the brink of banruptcy but also to transform the computing, the entertainment and the communication industries — is a salutory lesson for all companies. Jobs’ firing was a product of corporate power politics and nothing more. Jobs was judged not corporate enough, too fiery, creative and entrepreneurial to play well with others on the board. He was basically kicked out for possessing a challenging personality and a fierce vision. These things can be threatening to those who don’t have them, but without them somewhere in your company, you’re sunk. Apple threw the baby out with the bathwater and paid a terrible price.

Jobs was re-hired for the same reasons he was fired. In the interim he had founded Pixar and learned many lessons. He had matured somewhat but lost none of the vision and, by all accounts, little of the fire. On his return, aside from recreating the brand, Jobs deliberately altered the hierarchical structure of the company to avoid the kind of fiefdom- building and power-play that harm innovation. Executives at Apple now radiate out from the CEO in a circle. Power is spread: the head of the online store, for example, doesn’t get to choose what is stocked, nor the design. Project leaders are appointed based on talent for the particular job at hand and no other reason.

The vertical hierarchy is over. It’s an artificial and outmoded structure, based on nothing but our own vanity. As Facebook has shown, the world is now a network and in a network, collaboration and crowd-sourcing of ideas and information are the routes to success. If companies persist in rewarding individual performance with pecking order status and power over others, they will only encourage zero-sum competition. Positions of power are usually won by the people who most want power, not by the people most able to innovate. Once positions of power are obtained, the executives concerned are no longer coming into work to do their jobs. They are coming in every day to maintain and defend their position. Politics take precedence over productivity. New ideas threaten such power structures and are crushed. We’ve all seen it. No wonder few companies can really innovate.

Innovation requires trust, mutual respect and collaboration. Companies with traditional vertical power structures can and do achieve innovative miracles, by plucking individuals away from their daily routines, creating task forces and suspending power-politics for a limited brief and a limited time. It works, but there is an erroneous consensus that this kind of “peak performance” microcosm cannot be maintained on a daily basis. Yes it can. Jobs did it. You change the structure, you change the reward. You reward innovation, you reward collaboration, you reward challenges to the business model and challenges to the status quo. You reward drive, curiosity and creativity. And — as Google does — you reward these with autonomy, rather than power. Autonomy is all we really need to be satisfied. Power is how we usually get it. But that can change. When we all do this, we may all produce something as majestic and world-changing as Jobs did.

Why no SKUs is good news : Private label marches on

Private label news: The FT had a rather interesting take on the SKU-editing trend. Responding to the revelation that Unilever is to cut 40% of its range, the article maintains that the manufacturers’ “trend towards less complexity is helped by the support of retailers, which are eager to clear more shelf space for their own-label products”. Meanwhile, Kraft and P&G say they have no intention of scaling back ranges.

Comment: “Helped by the support of retailers” is an interesting way of putting it. In truth, retailers’ SKU-delisting exercises and the rise of private label are forcing manufacturers to reconsider their ranges. But smart companies are turning the situation into something positive. Unilever is using the exercise to cut costs across its supply chain and leverage scale: the leanness will serve the company well. It’s a sensible and businesslike response to increased private label activity, as is increased collaboration with retailers over NPD. There is consensus that consumers will not abandon their “hero brands” for private label, but the endless flankers are helping no one, least of all the consumer. The cult of “new” is so ingrained in brand marketing strategy, however, that I doubt many manufacturers are ready to abandon it. Wall Street’s demand for growth is so insistent that it must seem so much easier just to add variants than work out how to get genuine organic growth from existing products. Such innovation is all very well, but if you can’t sell it in …

Killing Steve Jobs: the future for Apple

The Economist had a couple of interesting articles last week. The first was yet another speculative piece about how Apple will fare after the departure of its iconic founder and CEO Steve Jobs. This article was notable for attributing to Jobs’ replacement, COO Tim Cook, a couple of things generally credited to Jobs, such as the removal of manufacturing from the balance sheet and the move to outsourcing. That move did much to make Apple financially viable when it was teetering on the brink and the revelation that it was in fact Cook’s idea bodes well for his stewardship of the Apple ship. Apart from that, it was typical fare: speculation and a tone of cautious optimism masking an underlying fretfulness.

People are right to fret about the departure of Jobs. If he was not directly responsible for the inventions, the marketing and design genius and business nous that brought Apple back from the brink, his leadership allowed these talents to come through from below. It was precisely the culture of risk-taking, the willingness to be “foolish”, as he put it, and rethink business models affecting whole industries, that made Apple what it is today. In business we hear an awful lot of that buzz word “sacred cow”. The sacred cow is that idea, structure, product or philosophy that no one dares to touch. Jobs was unafraid to kill these and rewarded that mentality among his team. Vertical integration was destroyed; the notion that Apple was just a computer company was destroyed; the notion that Apple could not be a retailer was destroyed. The notion that the music business or the publishing business could not be changed was destroyed. The notion that technology didn’t need to be elegant, couldn’t be a fashion statement: that was destroyed too. His was a culture in which ideas that challenged not only the status quo of the market, but which challenged the existing Apple ethos, were allowed to bubble up, to the profit of the company. His was a culture of creative disruption that reversed the fortunes of many.

The second Economist article, somewhat ironically, was a treatise railing against the cult of the CEO.

The worst thing Apple could do now is preserve Jobs in formaldehyde. The worst thing it could do is be so worried about living up to that legacy that it becomes risk-averse. If Jobs has done his job well, he has taught the company to be unafraid. Apple under Jobs excelled at killing sacred cows and doing the unthinkable. The next sacred cow Apple needs to kill is Jobs himself.

Why Marmite Matters

i-love-you-marmiteUnless you grew up in the UK, a news story claiming that Denmark had banned a British product called Marmite from sale, because its fortification with vitamin B fell foul of Denmark’s regulations, will probably leave you cold. But for Unilever, the company that now owns the brand and markets the product, the story represents the kind of marketing that money can no longer buy. At least, not directly.

As it turned out, Denmark had not technically banned Marmite or any product like it. But that hardly matters. By the time the facts were set straight by the Danish embassy, the whole of the UK was talking about the brand and, by happy chance, everyone now knew that it was a source of vitamin B. For the uninitiated, Marmite is a dark brown savoury spread made from yeast extract, a brewery by-product. Dating from 1902, it has a very strong and distinctive flavour that tends to polarise opinion. If you grew up liking it, you’re probably still attached to it. If you grew up really not liking it, then you are probably appalled by it and unlikely to change your mind.

Unilever, since it acquired Marmite in 2000, has been highly adept at exploiting the extreme feelings towards its brand and has long run humorously self-mocking ad campaigns around the tagline “love it or hate it”. Today, the company goes as far as to run opposing brand websites and Facebook pages, one set dedicated to lovers of the product (650,000 fans), the other reserved strictly for its haters (180,000 detractors). There is passion in both camps. The result of this decade of studied foment, along with some clever merchandising, has been to elevate the status of the brand from quirky choice that isn’t for everyone to that of National Icon. There was jingoistic booing on the lovers’ Facebook page when the Denmark story broke. There was rejoicing on the haters’ page. Some of the comments there went far beyond criticism.

Tribes

The more the “haters” hate, the more they reinforce the identity of the superfans, or the Marmarati, as they were dubbed by We Are Social, the agency that launched premium variant Marmite XO via social media last year. Marketing has entered a new universe. That old megaphone system – where capital bought us a mass media platform to interrupt a mass of people with a message about our product, repeatedly until masses of them bought it – that system is over. We know why; we all got the memo about the fragmentation of media channels, the rise of internet use, the disruption of business models and the need to find new channels. In this world, the concept of the mass market is as outdated as its media channels.

In 2010, Facebook finally overtook Google in the US as the most visited site on the internet. One of the reasons for the shift was that, increasingly, people were bypassing search as a way to get information and instead reaching out to their networks, their social groups, for answers that were more meaningful and relevant to them than the hierarchy of results proposed by Google. In a world of social media, what is of value is no longer what pops up first in search; we know that is the result of either paid sponsorship or canny search engine optimisation. What is valued is that which is most shared from peer to peer. One of the chief challenges of marketing on social media, therefore, is getting people to share messages about our brands. Why would they?

Communities

They will if the content is worth sharing. You cannot create artificial communities. Communities are organic and these “tribes” coalesce by themselves around a shared passion. As marketers, if we try to manufacture communities for products and services that have no tribe, we will have a long and difficult time ahead. The trick is to find the tribe and give it something worth sharing. Unilever understood about tribes a decade ago when it began marketing around Marmite’s power to divide. The result, today, is two tribes of passionate consumers fervently talking about Marmite online, sharing stories about Marmite and images of Marmite. Yes, even those who had no intention of buying the product were engaging with and building the brand, effectively spreading the word. The traditional media all joined in, with right-leaning and left-leaning news sources alike running stories about Denmark’s alleged ban on Marmite.

You literally cannot buy this kind of coverage. Well – a brand could pay an agency to mastermind such a campaign and seed the story, but after that, it runs itself. The first wave spreads the initial story. A second wave retracts it (score two for brand recognition). A third wave picks apart the phenomenon. Score three. That’s a lot of mentions, a lot of value and all of it done on behalf of your brand by people who freely opted into the process of sharing. There is nothing to suggest this particular story was a covert advertising campaign, but it does provide a very good future model.

This space for free

The key lesson here for brand owners is that, in a world where ideas that spread organically win the game, interruption marketing – the kind for which we used to pay out millions – doesn’t really work. Not the way it once did. People have too much choice and too little time; they will filter out, ignore or otherwise redact these intrusive messages from their lives. What work are messages spread by people who opt in, who care enough to share. The challenge is not creating a product that is the best, but creating a story, some content around your brand that is remarkable enough to be worth sharing. Get that right and advertising is now free.