I’m posting more frequently on Altus Alliance’s blog. Here’s a link to my latest post over there -- When is the time right for Renaissance vs. Coin-operated Sales?
Friday, September 19, 2008
Wednesday, May 28, 2008
This post talks about multiple research examples that strongly indicate people choose guaranteed small benefit over a non-guaranteed but potentially large benefit. Interestingly, this only applies to decisions not based purely on the math and probabilities.
"This experiment, repeated again and again by many researchers, across ages, genders, cultures and even species, rocked economics, yielded the same result. Directly contradicting the traditional idea of "economic man”, Prospect Theory recognizes that people have subjective values for gains and losses. We have evolved a cognitive bias: a pair of heuristics. One, a sure gain is better than a chance at a greater gain, or "A bird in the hand is worth two in the bush." And two, a sure loss is worse than a chance at a greater loss, or "Run away and live to fight another day." Of course, these are not rigid rules. Only a fool would take a sure $100 over a 50 percent chance at $1,000,000. But all things being equal, we tend to be risk-adverse when it comes to gains and risk-seeking when it comes to losses.
I can see how this applies in some of the partnerships that I strike. For example, if I’m working on a revenue share deal I could offer a guaranteed payment or we could do a straight split (e.g., 50/50) of revenue that came in. Even though it may be the majority of the cases would result in a greater payment to the partner, I could see how they’d prefer that my company take on the margin risk. Let me make this more concrete. Let’s say I have a widget to sell that we can predict should fetch at least $100 and where the partner would be happy with $50 out of every unit sold. In reality, it may be that I can sell that widget for $120 some times and $75 other times. As long as I believed I could net north of $50 of margin per sale, I’d go with the flat fee to the partner and they’d probably be happier that way.
I know of a real world example in the travel industry. Most vacation property managers pay a set percentage of the rental fee they collect (separate from direct costs). There’s a property manager who runs one of the best property management firms out there who takes a different approach. They have worked out an arrangement where they pay a fixed per night fee to their property owners. It turns out that they are good at yield management so they are able to get a much better financial return by paying the fixed amount. Both parties are happy.
Wednesday, March 26, 2008
From Media Buyer/Planner:
“GM, in what could signal a no-look-back shift to digital marketing, will dedicate half of its $3 billion budget to digital and one-to-one marketing in the next three years. As the country’s third largest advertiser, GM’s switch may be the online marketing shot heard round the automotive world.
The news is not good for traditional media and may be exacerbated by a directive from GM’s Brent Dewar, vp-field sales, service and parts in North America. Dewar told Ad Age late last year that the auto maker will try to persuade its regional dealer ad groups “to shift their focus to digital vs. spot TV” starting this spring after the dealer co-ops, which spend $500 million annually, are revamped.
Other car makers are also upping online buys; Hyundai will double its online spending in 2008 over 2007.
Auto dealers are increasingly shifting their spend to online, with a particular focus on customer ratings and reviews and online video. 59 percent of dealers say they plan to use video on their own websites within the next 12 months, up from the current 33 percent.”
Monday, March 24, 2008
This company out of Boise is popularizing a new sport called riverboarding. Banshee Riverboards received much of their funding from Keiretsu Forum members. Check out the demos of their product below.
Friday, March 07, 2008
I wrote a series over 3 years ago for iMediaConnection.com where I explored the advertising market in 2010. One piece of this predicted that Google would be the largest ad agency by 2010. So far, it looks like most of what I wrote is playing out. Here’s a look back at that segment of the series.
In the third of three parts, Dave Chase of the
Editor's Note: In part one of this short series, Dave Chase explored where interactive media and marketing will be in five years, and described the media consumption habits of a hypothetical married couple, Mike and Jill. Then, in part two, he discussed the backend technology that could serve ads to the couple.
Will Google be the biggest ad agency in the world by 2010?
In part one, I laid out a future of how internet-based advertising models will pervade the TV world. If you buy it, then changes will inevitably happen in the ad industry. I predict that Google will be the largest “ad agency” in the world by 2010.
Dramatic industry shifts usually don’t happen from obvious places. Ample evidence of that exists, whether you look at the music business, the encyclopedia business, the newspaper classified business, the retailing business or many others. Companies that too narrowly define their competition inevitably have their business cratered from unexpected places. Aggressive, growth-oriented companies -- Google and Wal-Mart are just two examples -- don’t care about pre-existing industry dividing lines. If it weren't them, some other organization would gladly eat away at incumbents’ businesses, even though the leaders of the change are attractive bogeymen for those under attack.
If you take a step back, the purpose of ads and search are to connect buyers with someone selling what buyers want (even if they don’t know they want it yet). In both cases, fees are collected from the people who have something to sell for connecting them with buyers of those items. No one is rushing to categorize Google as an ad agency -- “they’re in the search business.”
You don’t have to study Google very hard to realize they aren’t limiting themselves to the “search business,” which is increasingly hard to define in any case. It’s important to recognize that Google isn’t charging for search: their income comes from advertising. As the old saying goes, if it looks and quacks like a duck, it is a duck. If they were considered an ad agency, they’d already be in the top five with a much stronger trajectory than any of the top five agencies.
You may be saying, “Wait a minute, they are more like a media outlet than an ad agency” (which is largely true today), but withhold judgment for a moment and some interesting insights can be drawn. To begin with, they are already doing media planning if the business has a high volume of clicks and it’s highly likely they are working on ways to make that easier (and thus scale to smaller advertisers).
If I walked into most offices of the leaders of the largest ad agencies in the world today and stated that Google/Yahoo!/MSN are their competitors, at best I’d get a polite laugh. They may say that I don’t “get” the ad agency business. Having been on both sides of the challenger/incumbent equation, I can say unequivocally that not “getting it” is usually an advantage for the challenger. The challenger isn’t shackled by the current way of thinking or, perhaps more importantly, the current business model. Like virtually every other company (especially a public company), Google and “their competitors” are inspired by what will make them the largest sum of money. Today, Google’s revenues are advertising-based, but tomorrow they may have increasingly more characteristics associated with the agency business.
Comparing some of the assets that agencies have versus Google is instructive. I’ll put these in context of some of the criteria I used to evaluate the ad agencies that I worked with when I held large ad budgets.
1. Efficiency with my budget: When my team owned the relationship/budget with an agency, I counseled them to look for padding and inefficiencies as the model shifted from a commission-based model (which had its own issues) to a salary multiplier. The latter seemed like a fair approach, based upon the number of people on the account. Furthermore, it was hard to know how well the agency negotiated with media outlets to get the best CPMs. With Google’s Adwords, you bid on how much you are willing to pay for a click that can range from pennies to dollars depending on the term. Google has a great feature where if you bid $1.50 for a click and the next highest bidder is $0.75, they’ll adjust what they charge you to $0.76. This looks like a more efficient way of spending my ad dollars and infinitely more trackable.
2. Consumer insight/research: I’ve worked with some fabulous media buyers and account planners. Their ability to dive into various syndicated research to identify the media properties with the optimal demo/psycho-graphics often impressed me. However, when you combine the almost unbelievable volumes of click behavior -- across many thousands of websites -- it provides a robust picture of brand motivation and preferences. It’s an approach that virtually any cold-blooded capitalist selling stuff would appreciate, and it is unrivaled by other means of capturing actual buyer behavior.
3. Ability to reach my target buyers where they live: Google’s Adsense offering (i.e., syndication of their contextual search ads) has major implications and makes them look an awful lot like a media agency. Not only does Google serve up ads on their own high-traffic site, they are syndicating their ads to virtually every nook and cranny of the web. As an advertiser, it gives them an efficient way to reach into highly targeted sites that would be impossible to buy in a manual manner. Anecdotally, I’m seeing Google ads on all kinds of obscure and relatively low traffic sites that happen to be highly relevant to me professionally or personally.
4. Ability to service local, regional and international markets: This has at least two dimensions: First, can you run particular ads for people who live in particular geographies whether that is
5. Focus on driving results vs. their ego: Since much of the execution of a campaign on Google is strictly driven by machines, there is no ego involved. From time to time, one runs up against this dynamic with agency creatives where they are more focused on winning awards than selling your product.
6. Creative work: This is an area where it would appear that agencies have a clear advantage if for no other reason than that the creative palette is limited with Google today. If you look at some of the trends outlined in part one -- combined with increased bandwidth and broadband penetration in the next five years -- it seems inevitable that the creative palette Google provides won’t be so limited. The advantage Google has in this scenario? Its cost to launch and test a new campaign is low, so creatives can refine their creative and copy while avoiding the high stakes and slow turnaround of typical campaigns of today. Such campaigns frequently get bogged down by approvals at the client level. This quick turnaround should shift creatives perspective from a) thinking of how limited their palette is to b) relishing the opportunity to get immediate feedback on campaign ideas that may be conceived of, executed and killed/expanded in less than a day.
7. Account service: This is an area where agencies should maintain a clear advantage for the foreseeable future, as people-oriented service is a core part of their value proposition. As Google and others gain an increasing share of their customers’ wallets, there will be an expectation of increased account service for large accounts. In a competitive market, Google will respond if Yahoo! or MSN try to offer better service. This factor can diminish the inherent advantage agencies have.
8. Media neutrality: Most agencies like to claim media-neutrality, but it’s virtually impossible to find in practice. The core obstacle is that the client’s budgets aren’t media neutral. There are often different teams, let alone different budgets for different media -- print, online, broadcast, etc. This makes it difficult for agencies to be media neutral. The philosophy behind Google’s technology is media neutral. It just so happens that it’s all executed on HTML web pages right now. Take the notion of delivering ads in the content you prefer to consume, on the device (PC, mobile device, etc.) you happen to be using at the moment and delivering the most relevant ad at the moment you consume it and extend it beyond online. It’s not hard to imagine this happening when your TV and radio have their own IP addresses along with your more traditional computing devices (this is already in process).
9. CRM: Marketers and agencies working on their behalf spend large sums of money to create and maintain an accurate customer database that helps paint a picture of their customers’ behaviors, likes and dislikes, demographics et cetera. It’s not unusual for a marketer to spend millions each year simply keeping their database up to date with basic information such as addresses. Meanwhile, Google’s customers do much of the maintenance work themselves as their cookies capture every web search, links you clicked on and when you did it. One area that Yahoo! and MSN have a clear advantage over Google is a much larger database of demographic information via their email/IM users (certainly one of the drivers for Google launching Gmail to much fanfare). Combine the demographic information with the surfing and searching behavior, and there isn’t an agency in the world that wouldn’t die to get their hands on that rich picture of their clients’ customers.
Is Google explicitly out to get the agencies’ business? Unlikely. It just so happens that when you look at the natural progression of their activities, it ends up dramatically impacting the agency business. The ironic thing is that Google is -- with complete sincerity -- probably spending significant sales and marketing resources to cultivate agency relationships. Like many other successful businesses, over time they will have more and more channel conflict where parties who were previously 100 percent complementary, and thus start to step on each other's toes. In the end, Google won’t look like an ad agency any more than eBay or Craigslist look like a newspaper classifieds business, but they will capture money from the same customers as the business that they are pilfering. It’s the agency leaders that should ask themselves what facets of Google’s business they need to develop or co-opt. Agency leaders would be wise to make sure they don’t have blinders on regarding their current business and their partners, or they are liable to be victims of an inevitable force.
Friday, February 01, 2008
My first experience working on a web-based media property was in 1995 at the dawn of the commercial Internet. I was one of the original members of the Sidewalk team that swelled to over 300 at one time. My original job was striking partnering deals with newspaper and other print partners which provided me a great education on the media business and print media, in particular. We genuinely wanted to strike favorable deals with them but most looked at Microsoft with great suspicion as Microsoft was reaching the height of its power so we couldn't expand as fast as we would have liked and contributing to an unfavorable financial picture. To the potential partners, they thought that we were putting lipstick on the Microsoft pig.
Despite the fact that I worked for the deepest pockets in the world (Microsoft/Bill Gates) and Bill had OK'ed that we'd go $500MM in the hole to go after the long-term prize of local ad $$, it was my first lesson that even deep pockets run short of patience. Lesson: The best way to build a long-term sustainable business isn't to build it banking on the ongoing largess of deep pockets. Rather, it's building it a step at a time building off of cashflow. With Sidewalk, we hemorrhaged money as planned. Even today, though it hasn't been around for years (Citysearch bought it; more on that later), I still have people tell me it was one of the best sites on the Internet. Sites like
The following is the tale of the evolution of how the deep pockets start to cut off your "air supply" and how it relates to pigs and lipstick: I became the general manager of cities to ensure that Sidewalk got far more efficient in how we rolled out and ran Sidewalk city teams. My team consisted of a team rolling out cities far more efficiently (we cut the time and cost in half to get up & running) as well as the Publisher/GMs of each of the new cities. I had 1/3 to a 1/2 of the entire Sidewalk team under my purview and boy were we losing money. Rolling out cities less expensively wasn't enough. From corporate headquarters, the executive management team was indifferent as to which markets to remove or pare down. A city was either a source of losses or profits and the message was clear what to do about losses. To take pressure off, we tried to put Lipstick on the Pig to make Sidewalk look better internally. Thus, we made the difficult decisions to cut cities wholesale or reduce staff size. This despite the fact that Microsoft was more profitable and growing faster than virtually any company in history at that point in time. Unfortunately, they saw past the lipstick. Never forget that even deep pockets expect a strong return on investment and it's usually sooner rather than later.
Of course, it's hard to shrink your way to success. The Internet ad market was still years from taking off and it was time to cut the losses as far as senior management was concerned. What's next? "Investigate strategic options." That's corporate speak for either shutting down or selling off a business. Key Sidewalk leaders were tasked with putting "Lipstick on a Pig". In other words, try to make the business look at good as possible so we could salvage some money from a sale rather than simply shutting down the whole operation (and there was a short fuse). While everything was perfectly legal, you do all you can to try to boost revenues and reduce or shift costs so that the potential acquirer thinks it's a great business they are buying. All this is done while trying to keep the troops as in the dark as possible so they don't get de-focused and/or want to jump ship.
The ultimate example of putting Lipstick on the Pig is when it comes time to report to the industry and Wall Street what you have done. The deal was reported as a $240MM acquisition by Citysearch so it was perceived as a victory for Microsoft. The Citysearch guys were sharp guys so with a clever warrant security the Citysearch guys called the "weedwacker", they reduced the stated price by $150MM. In the end, the deal actually cost Citysearch less than $100MM yet Microsoft was able to save face and Citysearch eliminated its biggest competitive concern.
Businesses of all types small, medium and large are bought and sold here in the valley. If you are the acquirer, always be wary of Lipstick on a Pig. A business rarely, if ever, looks as good as it does on the day it is sold. Caveat emptor.