Many writers and industry analysts are debating if e-publishing will conquer print publishing (various article links below). If is not debatable. When and how are. In other words, think about when print will be conquered and how to make money in the future of publishing.
Keep in mind that you are probably among the earlier adopters of digital technology. History has yet to run its course and digital habits have yet to go fully mainstream (consider the computer literacy of the 2008 Republican presidential candidate).
Historically, the automobile was an economic game-changer (an industry disrupter, if you will) for transportation just as digital technology is for reading. The method is irrelevant to the purpose. Transportation involves going from Point A to Point B. While people had grown up with and were accustomed to the horse fulfilling this need, horses aren't necessarily critical to the basic need of transportation just as paper is no longer critical to the basic need of reading. Aside from the paper milling industry, there are other unnecessary middlemen operations (lumber, shipping and storage, printing, binding, brick and mortar retailing via Barnes & Noble, Borders, etc.) that make the economics of print publishing unviable in the long-term when competing with e-publishing.
The resistance to abandoning paper is like the resistance to abandoning horses. Arguments to preserve paper – the feel of the book, the durability, less risk of reading in the tub – will seem as ridiculous in 100 years as arguments to preserve horses for transportation seem now. There were surely people who felt horses would never be replaced. After all, the automobile can't go everywhere a horse can go. Not everybody liked cars. Horses were the standard everybody grew up on. They used to call common sense "horse sense." There surely are virtues to printed copies of text just as there surely were virtues to keeping horses. On a different note and more personal level, I hold great affinity for the cassette tape. I still own dozens of mixtapes and can make strong arguments in favor of the cassette over the compact disc (although those don't hold water against digital music). Unfortunately for the tape, economics trump virtue. In other words: money talks, bull**** walks.
While we internet-savvy consumers from industrialized countries are early adopters, we are also fossils historically in that we even have some attachment to printed reading. How strong is that attachment among the youth in South Korea, the country which boasts the best broadband penetration in the world and whose citizenry performs most daily tasks and live their lives on smart-phones? If you're in the US, you may receive printed coupon advertising in the mail. In South Korea, they receive text message offers from restaurants and retailers as they pass the place. Paper is unnecessary.
To better understand where print is going, watch the newspaper industry. 50 years ago, every town needed a hard copy paper to publish the same world news and a few local stories. But in the 21st century and beyond, how many letters of record are needed past the New York Times, Wall Street Journal, and niche pubs like The Guardian and The Economist? Do people really need a hard copy of the St. Louis Post-Dispatch? People are already going online for news while the industry scrambles for revenue. Who needs the local classified section when there are superior digital resources like craigslist and eBay? Printed book publishers will eventually run into financial woes as well.
Determining when print will die is difficult. America won't match super-urban South Korea's broadband penetration any time soon because of its geography – suburban Americans live spread out in big houses with yards. This will inhibit the already slow digital adoption rate in America (don't forget about the presidential candidate who doesn't use the Internet). You may live most of your life before the inevitable death of print. In most of the world, the masses living in emerging markets don't yet have the means for digital technology. However, they may be able to leapfrog outdated technology like printing as they leapfrogged landline phones.
Determining how to make money is also difficult. I'm not going to pretend to have an idea how this angle will play out, but I'm confident that capitalism and the profit motive will find a way. I whole-heartedly disagree that the quality of literature will suffer. I imagine that argument was made by musicians complaining about the emergence of the phonograph record in the early 20th century. If people can buy our music once and listen to it forever, they won't pay to see us perform. How will we make money? All the good musicians will quit making music. Present day musicians revived that fear when downloading technology came in the picture, but society has managed to monetize that as well. While the kinds of art found in museums may need a government subsidy, music and reading have always demanded a high premium. There will always be a market. Does anybody honestly foresee a shortage of writers someday?
Then again, published content will certainly change. I converted from the Times hard copy to the Internet about a year ago and there is a clear difference in what I choose to read. With a hard copy, you are almost compelled to read all the articles. While I thoroughly enjoyed a 3000 word article about the growing exports from Brazil of HPC products featuring exotic ingredients from the Amazon rainforest, I probably wouldn't have clicked on it if I were getting my news online. On the other hand, should the mainstream public be subsidizing that article if nobody cares about it? Or should it be featured in a niche publication? Nicholas Carr in The Atlantic on how reading online may change what we read and even how we think: "Is Google Making Us Stupid?"
What's my point? Don't think if. Think when and how.
Marketing guru Seth Godin on the future of publishing
Samir Husni on the power of print
Bob Sacks says "It's a Digital World Now"
Sunday, January 25, 2009
Friday, October 10, 2008
No Conclusion on the EU
Ten leading European economists have recently written an open letter to European leaders urging a coordinated rescue plan for the world financial crisis, specifically as it implicates European banks. (As ten economists drafted the letter, over 300 more have since signed it as of this writing, see this article).
The letter made the argument that the “piecemeal” actions being taken in Europe will never amount to a solution for the crisis. “The current approach of rescuing one institution after another with national funds will lead to Balkanization of the European banking sector.” The letter went on to say that the US has already learned that bailing out a few giants did virtually nothing to stop the bleeding. Due to the credit-default swap industry, or banks insuring each other’s bad debt, the banks are all tied together as if with rope while trying to stay afloat in deep waters. When one or two go under, they will take others with them.
Those economists are not alone in their assessment. According to a recent Bloomberg article about Europe’s challenges, European Commission President Jose Barroso called on Europe to remove the “mismatch between a continental-scale market and national systems of supervision,” (see this article). The European Union, while comprising 27 different nations with 27 national governments, acts as one financial market with one currency (one currency for 15 member states, anyway). Banks across national borders are deeply intertwined with each other and their relationships affect smaller countries where neither bank is located. So a “systemic crisis demands a systemic response.” Coming up with an aid package that successfully navigates all the multinational bureaucratic red tape involved will prove extremely difficult if not impossible.
Adding to what seems like a perfect storm in Europe is the extreme diversity within the continent. Besides having 27 different governments, 27 different heads of state, and 27 different constituencies to independently please, there are extreme cultural issues to overcome. There are 23 official languages within the EU. Whether generalizing Europe in terms of East vs. West, North vs. South, or Christian vs. Muslim, there is really nothing in common among all states besides soccer. Imagine the possibilities for disagreement over a solution between the Greeks and the Swedes, or the Spanish and the Polish. One doesn’t even have to cross the continent to find such contrasts. England and France, neighbors, are well-known rivals who loathe each other, and my Swiss roommate often has less than kind words to say about the Austrians. Besides the fact that Switzerland has been involved in fewer wars, how many people can detail the cultural differences between those two? I can’t. As the Bloomberg article notes in its lead sentence, “It took the European Union almost three decades to agree on what could legitimately be called chocolate.”
While America is the most diverse country in the world, she has centuries’ experience of dealing with its ethnic, geographic, and economic diversity. America also has the benefit of only one federal government in control. So the US is at an advantage over the EU in executing its comprehensive public bailout of the financial services industry. The House of Representatives voted against the first bailout plan and showed how difficult drafting such a plan will be even in the States. I just can’t grasp how pain-staking of a process it will be for Europe.
In my International Banking class of my graduate program, the professor explained how the European Union was relatively young historically, and that there was no real conclusion on how it will turn out. It has yet to pass the test of time to call it a success. This directly contradicts what almost came to be considered common sense in the media – the US dollar was in the toilet and it would never come out. Some day the Euro would be the reserve currency of choice. I also heard this incessantly from my European friends.
While never arguing with my friends native to the other side of the big pond, I always viewed the fall of the dollar as a normalization of what was long overdue. I thought that the dollar was probably overvalued for the generations that Europe was economically splintered (what I wouldn’t give to be an American in the 80s vacationing in Europe!). Europe finally united and quickly grew its buying power. Imagine how much waste was saved by creating a common financial groundwork and establishing an ease of crossing borders. Imagine the waste, before the economic unity, of all the financial professionals dedicating their time, labor and resources to currency arbitrage alone. The EU became a much more productive, cohesive continent despite its inherent diversity and government fiefdoms.
The EU normalized economic standards and collectively grew faster than ever. The Euro increased in value to somewhere around $1.50. However, most of the economic reforms were planned in 1993 and executed in 1999. Being so young, the EU has yet to pass a significant test such as the global financial crisis we are in today. This is a historic time, especially for the EU. How quickly it can produce a continent-wide solution, and how effective that solution is, will help determine its historical success. As the Bloomberg article explains, the unanimity requirement for changes makes decision-making terribly slow. In trying to solve this problem, it has tried to change rules in favor of a stronger governing body twice. The French and Dutch rejected a constitution in 2004 and the Irish rejected the 2007 Lisbon Treaty (which the Polish were expected to do if the Irish hadn’t). As the crisis deepens and pressure mounts, the financial bloc may hastily push through a plan that satisfies everybody but is ineffective or not ideal.
As the US dollar was artificially over-valued while Europe was an economic mosaic similar to America in the 18th century under the Articles of Confederation, the Euro may prove to be overvalued after it overshadowed the dollar, never having proved itself in the absence of the EU’s ever seeing a crisis. The dollar has already started to gain on the Euro (currently $1.34 / 1 Euro). Only time will tell what will happen. Being one who earns US dollars, I am cheering for a 1:1 ratio someday. But if the EU can successfully come together and take swift, effective action, it will bind the countries even more. This may set the stage for, and I will be dead long before this happens, the conversion from 27 nations in alliance to 27 states in one country: The United States of Europe. In 150 – 200 years, who knows? It could happen.
The letter made the argument that the “piecemeal” actions being taken in Europe will never amount to a solution for the crisis. “The current approach of rescuing one institution after another with national funds will lead to Balkanization of the European banking sector.” The letter went on to say that the US has already learned that bailing out a few giants did virtually nothing to stop the bleeding. Due to the credit-default swap industry, or banks insuring each other’s bad debt, the banks are all tied together as if with rope while trying to stay afloat in deep waters. When one or two go under, they will take others with them.
Those economists are not alone in their assessment. According to a recent Bloomberg article about Europe’s challenges, European Commission President Jose Barroso called on Europe to remove the “mismatch between a continental-scale market and national systems of supervision,” (see this article). The European Union, while comprising 27 different nations with 27 national governments, acts as one financial market with one currency (one currency for 15 member states, anyway). Banks across national borders are deeply intertwined with each other and their relationships affect smaller countries where neither bank is located. So a “systemic crisis demands a systemic response.” Coming up with an aid package that successfully navigates all the multinational bureaucratic red tape involved will prove extremely difficult if not impossible.
Adding to what seems like a perfect storm in Europe is the extreme diversity within the continent. Besides having 27 different governments, 27 different heads of state, and 27 different constituencies to independently please, there are extreme cultural issues to overcome. There are 23 official languages within the EU. Whether generalizing Europe in terms of East vs. West, North vs. South, or Christian vs. Muslim, there is really nothing in common among all states besides soccer. Imagine the possibilities for disagreement over a solution between the Greeks and the Swedes, or the Spanish and the Polish. One doesn’t even have to cross the continent to find such contrasts. England and France, neighbors, are well-known rivals who loathe each other, and my Swiss roommate often has less than kind words to say about the Austrians. Besides the fact that Switzerland has been involved in fewer wars, how many people can detail the cultural differences between those two? I can’t. As the Bloomberg article notes in its lead sentence, “It took the European Union almost three decades to agree on what could legitimately be called chocolate.”
While America is the most diverse country in the world, she has centuries’ experience of dealing with its ethnic, geographic, and economic diversity. America also has the benefit of only one federal government in control. So the US is at an advantage over the EU in executing its comprehensive public bailout of the financial services industry. The House of Representatives voted against the first bailout plan and showed how difficult drafting such a plan will be even in the States. I just can’t grasp how pain-staking of a process it will be for Europe.
In my International Banking class of my graduate program, the professor explained how the European Union was relatively young historically, and that there was no real conclusion on how it will turn out. It has yet to pass the test of time to call it a success. This directly contradicts what almost came to be considered common sense in the media – the US dollar was in the toilet and it would never come out. Some day the Euro would be the reserve currency of choice. I also heard this incessantly from my European friends.
While never arguing with my friends native to the other side of the big pond, I always viewed the fall of the dollar as a normalization of what was long overdue. I thought that the dollar was probably overvalued for the generations that Europe was economically splintered (what I wouldn’t give to be an American in the 80s vacationing in Europe!). Europe finally united and quickly grew its buying power. Imagine how much waste was saved by creating a common financial groundwork and establishing an ease of crossing borders. Imagine the waste, before the economic unity, of all the financial professionals dedicating their time, labor and resources to currency arbitrage alone. The EU became a much more productive, cohesive continent despite its inherent diversity and government fiefdoms.
The EU normalized economic standards and collectively grew faster than ever. The Euro increased in value to somewhere around $1.50. However, most of the economic reforms were planned in 1993 and executed in 1999. Being so young, the EU has yet to pass a significant test such as the global financial crisis we are in today. This is a historic time, especially for the EU. How quickly it can produce a continent-wide solution, and how effective that solution is, will help determine its historical success. As the Bloomberg article explains, the unanimity requirement for changes makes decision-making terribly slow. In trying to solve this problem, it has tried to change rules in favor of a stronger governing body twice. The French and Dutch rejected a constitution in 2004 and the Irish rejected the 2007 Lisbon Treaty (which the Polish were expected to do if the Irish hadn’t). As the crisis deepens and pressure mounts, the financial bloc may hastily push through a plan that satisfies everybody but is ineffective or not ideal.
As the US dollar was artificially over-valued while Europe was an economic mosaic similar to America in the 18th century under the Articles of Confederation, the Euro may prove to be overvalued after it overshadowed the dollar, never having proved itself in the absence of the EU’s ever seeing a crisis. The dollar has already started to gain on the Euro (currently $1.34 / 1 Euro). Only time will tell what will happen. Being one who earns US dollars, I am cheering for a 1:1 ratio someday. But if the EU can successfully come together and take swift, effective action, it will bind the countries even more. This may set the stage for, and I will be dead long before this happens, the conversion from 27 nations in alliance to 27 states in one country: The United States of Europe. In 150 – 200 years, who knows? It could happen.
Thursday, July 31, 2008
General Motors: A Case Study Revisited
It was announced today that GM has lost $15.5 billion - in the second quarter alone! People have wondered for decades about the future of the American auto industry. Will one of the Big Three fall? Convinced it is inevitable, some just wonder when. The SUV boom of the nineties kept them afloat until roughly 2001, when $1 / gallon gasoline went extinct. They all started hemorrhaging money for years. I was among those who were sure that one had to fall. How long could they last? Then, in July 2007, I participated in a team case study on General Motors for a required course in my graduate studies - Strategic Management and Implementation. Although I had been waiting for GM or another American automaker to fall, I became more optimistic after studying the case a little more indepth.
I identified GM's strategic group competitors to be Ford, Chrysler, Toyota, Renault-Nissan, and Honda. In examining these companies, I noticed the American automakers all had the same problems. The story was less of a GM vs. all-the-rest story as it seemed an American automaker vs. the Japanese automakers story. The statistic that stuck out was the $30 / hour, or 67%, difference in labor costs between the Japanese and American companies. The Japanese Big Three paid an average of $45 / hour to their American employees compared to the $75 / hour paid by American companies. The bulk of the difference is explained by American companies' massive retiree health benefit totalling $90.5 billion, or an estimated $1,000 - $1,800 per car sold!
This, in my opinion, is the bulk of the story. How does a manufacturing company compete when its labor costs are 2 / 3 higher? For a short run, they competed on profitable trucks and SUV’s. But those days are gone. As I was researching the case, I learned that negotiations over the next labor contract between the automakers and the United Auto Workers (UAW) would be taking place soon after the course was completed. For years, the American automakers practiced “pattern bargaining,” in which all three negotiate with labor during the same week and all three get virtually the same deal. Historically, this had the effect of removing labor costs from the realm of competition because each company could be confident they were paying their employees the same. Instead, they focused on design, quality, etc. Removing labor costs from competition put American companies at a disadvantage as they began to face global competition from less benevolent employers.
In researching labor relations at the time of the case, I found the UAW in a virtual death spiral. Auto parts companies, including Delphi, Dana Corp. and AC Delco, had recently emerged from bankruptcy and received more favorable deals from the union. In fact, every UAW negotiation leading up to the Big Three involved sweeping concessions due to manufacturers’ financial woes and tough competition from other countries or foreign firms with non-union US plants. Ex-UAW president Doug Fraser was quoted as saying that this was “the most difficult time in the history of our union. Period.” In the final presentation, I stressed the importance of gaining a favorable deal in the upcoming negotiations. I emphasized that GM needed to “hang on” financially long enough to take advantage of its opportunities.
Next, I showed several studies of consumer perceptions toward American autos. As you can guess, they were highly negative. However, I contrasted those perceptions with reality in JD Power & Associate rankings. American automakers had made great strides in closing the quality gap of the late eighties and early nineties. However perception is crucial. Perception, I contended, needs a much longer time to change when it pertains to durable goods like cars. People won’t be convinced the quality is comparable until word spreads about American cars that last ten years without major repairs. It could take ten years from when the quality is truly comparable. If GM could just “hang on” until perception caught up with reality.
In 2006, GM grew sales in emerging markets China and Brazil by double digit figures. They made plans to build a manufacturing plant in Russia while closing plants in the US and Germany. Their classic brands are particularly strong and saw solid growth in Latin America, the Middle East, and Africa. The nature of the changing world economy presented new fronts for GM to gain leads over the competition.
The price of gas, global warming, and dependence on foreign oil are on the domestic conscience more and more every day (exponentially more so in July 2008 than July 2007). While Toyota marketed the best-selling hybrid, the Prius, GM is very competitive in its green technology. They were the first automaker to market an electric car in the 1990s and announced a new all-electric car in 2010, the Chevy Volt.
My main analysis of the case was that if GM could just “hang on” until (A) they become financially sound through reduced labor costs and (B) the perception of quality changes (which it will), then the company could take advantage of its main opportunities in (1) emerging markets and (2) green technology. If GM could just hang on…
Back to 2008, the price of oil has doubled in less than a year due to emerging markets’ growing demand, instability in Nigeria, and increasingly confrontational politics from oil producing countries like Russia, Iran, and Venezuela. High gas prices have all but destroyed the SUV and light trucks market (American automakers’ only real apple cart) at the same time as the subprime mortgage crisis has morphed into a worldwide economic slowdown. Subprime mortgage was on the radar in 2007, but it wasn’t projected to be what it has become (Bear Stearns, Fannie, Freddie, Countrywide). The ensuing global credit crunch has further reduced GM’s options and breathing room in staying afloat. GM lost $15.5 billion dollars in the second quarter. A month earlier, a Merrill Lynch analyst commented that a GM bankruptcy “isn’t impossible,” sending the stock tumbling to a pitiful $10 / share. Suddenly, the big qualifier in my analysis seemed a lot bigger, an obstacle almost insurmountable – “if they can just hang on…” While hanging on, GM will have to pay the costs of designing competitive, fuel-efficient vehicles while, at the same time, converting SUV and truck plants into manufacturing facilities for small cars. At the same time, it will also have to continue to lead the efforts in green technology while not short-changing investment in emerging markets. Time will tell if it is up to this tough challenge.
I identified GM's strategic group competitors to be Ford, Chrysler, Toyota, Renault-Nissan, and Honda. In examining these companies, I noticed the American automakers all had the same problems. The story was less of a GM vs. all-the-rest story as it seemed an American automaker vs. the Japanese automakers story. The statistic that stuck out was the $30 / hour, or 67%, difference in labor costs between the Japanese and American companies. The Japanese Big Three paid an average of $45 / hour to their American employees compared to the $75 / hour paid by American companies. The bulk of the difference is explained by American companies' massive retiree health benefit totalling $90.5 billion, or an estimated $1,000 - $1,800 per car sold!
This, in my opinion, is the bulk of the story. How does a manufacturing company compete when its labor costs are 2 / 3 higher? For a short run, they competed on profitable trucks and SUV’s. But those days are gone. As I was researching the case, I learned that negotiations over the next labor contract between the automakers and the United Auto Workers (UAW) would be taking place soon after the course was completed. For years, the American automakers practiced “pattern bargaining,” in which all three negotiate with labor during the same week and all three get virtually the same deal. Historically, this had the effect of removing labor costs from the realm of competition because each company could be confident they were paying their employees the same. Instead, they focused on design, quality, etc. Removing labor costs from competition put American companies at a disadvantage as they began to face global competition from less benevolent employers.
In researching labor relations at the time of the case, I found the UAW in a virtual death spiral. Auto parts companies, including Delphi, Dana Corp. and AC Delco, had recently emerged from bankruptcy and received more favorable deals from the union. In fact, every UAW negotiation leading up to the Big Three involved sweeping concessions due to manufacturers’ financial woes and tough competition from other countries or foreign firms with non-union US plants. Ex-UAW president Doug Fraser was quoted as saying that this was “the most difficult time in the history of our union. Period.” In the final presentation, I stressed the importance of gaining a favorable deal in the upcoming negotiations. I emphasized that GM needed to “hang on” financially long enough to take advantage of its opportunities.
Next, I showed several studies of consumer perceptions toward American autos. As you can guess, they were highly negative. However, I contrasted those perceptions with reality in JD Power & Associate rankings. American automakers had made great strides in closing the quality gap of the late eighties and early nineties. However perception is crucial. Perception, I contended, needs a much longer time to change when it pertains to durable goods like cars. People won’t be convinced the quality is comparable until word spreads about American cars that last ten years without major repairs. It could take ten years from when the quality is truly comparable. If GM could just “hang on” until perception caught up with reality.
In 2006, GM grew sales in emerging markets China and Brazil by double digit figures. They made plans to build a manufacturing plant in Russia while closing plants in the US and Germany. Their classic brands are particularly strong and saw solid growth in Latin America, the Middle East, and Africa. The nature of the changing world economy presented new fronts for GM to gain leads over the competition.
The price of gas, global warming, and dependence on foreign oil are on the domestic conscience more and more every day (exponentially more so in July 2008 than July 2007). While Toyota marketed the best-selling hybrid, the Prius, GM is very competitive in its green technology. They were the first automaker to market an electric car in the 1990s and announced a new all-electric car in 2010, the Chevy Volt.
My main analysis of the case was that if GM could just “hang on” until (A) they become financially sound through reduced labor costs and (B) the perception of quality changes (which it will), then the company could take advantage of its main opportunities in (1) emerging markets and (2) green technology. If GM could just hang on…
Back to 2008, the price of oil has doubled in less than a year due to emerging markets’ growing demand, instability in Nigeria, and increasingly confrontational politics from oil producing countries like Russia, Iran, and Venezuela. High gas prices have all but destroyed the SUV and light trucks market (American automakers’ only real apple cart) at the same time as the subprime mortgage crisis has morphed into a worldwide economic slowdown. Subprime mortgage was on the radar in 2007, but it wasn’t projected to be what it has become (Bear Stearns, Fannie, Freddie, Countrywide). The ensuing global credit crunch has further reduced GM’s options and breathing room in staying afloat. GM lost $15.5 billion dollars in the second quarter. A month earlier, a Merrill Lynch analyst commented that a GM bankruptcy “isn’t impossible,” sending the stock tumbling to a pitiful $10 / share. Suddenly, the big qualifier in my analysis seemed a lot bigger, an obstacle almost insurmountable – “if they can just hang on…” While hanging on, GM will have to pay the costs of designing competitive, fuel-efficient vehicles while, at the same time, converting SUV and truck plants into manufacturing facilities for small cars. At the same time, it will also have to continue to lead the efforts in green technology while not short-changing investment in emerging markets. Time will tell if it is up to this tough challenge.
Thursday, June 12, 2008
The Unsolicited InBev Bid For Anheuser-Busch
Last week, InBev offered $65 / share to acquire Anheuser-Busch. The combination would make the largest beer company by sales revenue in the world. Anheuser-Busch used to hold the title, until Interbrew of Belgium merged with AmBev of Brazil, creating InBev. And then South African Breweries' acquisition of Miller Brewing and other companies dethroned InBev and currently holds the spot. InBev is primarily interested in Anheuser-Busch to gain a foothold in the US market (AB keeps about a 50-share compared to InBev's 2%), but also to add the "iconic" Budweiser brand to its world market-penetrating portfolio.
Before the offer went public, Anheuser-Busch CEO (and fifth-generation family member at the helm) August Busch IV was quoted as saying that the company "won't be sold on my watch." Being from St. Louis and having worked for Anheuser-Busch for two years, I knew he wouldn't be the only one staunchly opposed to the sale. There is a mentality ingrained in the company culture and the city of St. Louis - a strong culture that I never really fit into. Recent news of regional politicians taking preventive actions against a sale also validates the widespread opinion that Budweiser, the world's best-selling beer, should remain American-owned in St. Louis, MO. Missouri governor Matt Blunt has asked the Federal Trade Commission to review the potential deal for potential anti-trust issues - a desperate and futile move given InBev's 2% market share. Similarly, Republican Congressman Kit Bond and Democrat Senator Claire McCaskill have lobbied the Department of Justice in an attempt to block the deal. Several websites have sprung up with names like "www.savebudweiser.com" and "www.saveab.com" to rally support for the company staying in St. Louis. Who do they plan to petition, I don't know. I had heard hints from St. Louis that "The Fourth" had a nuclear option up his sleeve to thwart a deal. Given that the family owns a tiny minority of shares which do not have super-voting privileges, and given the board of directors is up for election in any given year, what could that nuclear option be? It turned out the nuclear option was to buy the remaining 50% of Mexico City's Grupo Modelo (brewer of Corona) that AB does not already own. Such an acquisition would raise AB's price tag $10 billion or so, which would be difficult for InBev to secure financing for in today's tight credit market. The Mexican families which control Modelo have about as good of a relationship with the Busch family as does the InBev management, so a deal isn't likely.
Unfortunately for Anheuser-Busch upper-management, protectionist politicians, and sentimental consumers, $65 / share is a price difficult to refuse. Due to consumer preferences shifting away from macrobrews toward craft brews and imports, spirits, and wine, AB has seen sluggish growth at best. AB's stock price has hovered around $50 for almost a decade. The main reason $65 is difficult to refuse is that there doesn't seem to be an exciting new strategy for growing the business. The most impactful new product of the last five years was Bud Select, a cannibalizing brand which I can't discern in taste from Bud Light. AB secured distribution rights for Monster energy drinks and, ironically, InBev beers in the US - both moves are hardly on the scale needed to significantly boost growth for the nation's leading brewer in an increasingly competitive global marketplace. AB briefly flirted with Brazil in the nineties, only to pull out and never return. AB does own 27% in China's #2 brewer, but margins in China are razor-thin and that asset won't bear significant financial results for a long time. On the other hand, InBev out-maneuvered Anheuser-Busch by dominating Latin America while consolidating a significant chunk of Europe. Soaring food prices (rice, corn, barley and hops) and a weak US dollar combined to create a perfect storm in which InBev is in the position to acquire AB outright, as opposed to the two companies' merger talks of yester-years.
The only rational reason the deal wouldn't happen lies in the cultural differences between the companies. InBev is known as a hyper-effective cost-cutter. They have closed centuries-old breweries in Europe and become a super-efficient holding company that just happens to sell beer. InBev management has been rumored to believe there is a potential $1.4 billion to cut from Anheuser-Busch operations. To the contrary, Anheuser-Busch is a benevolent employer known for generous employee compensation and spending top dollar on marketing initiatives - a contributing factor to its powerful brands. Brand management is Anheuser-Busch's business, core competence and passion. In my first year of employment in Contemporary Marketing, I had a $300 / week expense account for the bars. After a few months, I learned the $300 was more of a minimum than a maximum. One week I spent $1500 and didn't even receive a phone call about it. And every St. Louisan has heard the stories of AB employment perks including free beer, first-class flights, generous pay, tickets to various entertainment, etc. InBev would certainly find cuts, but would these two cultures blend? A private-equity-firm-esque, holding-company mentality and a tradition-rich, patriotic, proud character? The inevitable culture clash presents the only rational reason the two shouldn't join.
It has been reported this week that the world's richest man Warren Buffet, whose Berkshire Hathaway is AB's second-largest shareholder owning 5% of the company, supports a deal. Other large shareholders - the majority of which do not live in the St. Louis area - have been reported to support a deal as well. Aside from political reasons, there is no compelling financial or strategic reason for the deal to not happen. Anheuser-Busch has been almost exclusively focused on US market share in an age of globalization. In my time with the company, every strategic move seemed to be aimed at Miller, Coors, or boosting sales in the mature US market. Meanwhile, I can't order a Budweiser anywhere in South America. (However, I should be able to as soon as Budweiser is in the InBev portfolio.) Without considering how much imaginary value lies in the temporary economic worries of protectionist Americans or sentimentality for an "American company" (regardless how competitive it would not be in the future), the best value for the Anheuser-Busch shareholders and the best opportunity for the Budweiser brand lies in the deal with InBev.
Insightful article by a St. Louis native and financial analyst in favor of a deal:
Sobering Thought: Anheuser-Busch sale makes sense (by David Weidner)
Before the offer went public, Anheuser-Busch CEO (and fifth-generation family member at the helm) August Busch IV was quoted as saying that the company "won't be sold on my watch." Being from St. Louis and having worked for Anheuser-Busch for two years, I knew he wouldn't be the only one staunchly opposed to the sale. There is a mentality ingrained in the company culture and the city of St. Louis - a strong culture that I never really fit into. Recent news of regional politicians taking preventive actions against a sale also validates the widespread opinion that Budweiser, the world's best-selling beer, should remain American-owned in St. Louis, MO. Missouri governor Matt Blunt has asked the Federal Trade Commission to review the potential deal for potential anti-trust issues - a desperate and futile move given InBev's 2% market share. Similarly, Republican Congressman Kit Bond and Democrat Senator Claire McCaskill have lobbied the Department of Justice in an attempt to block the deal. Several websites have sprung up with names like "www.savebudweiser.com" and "www.saveab.com" to rally support for the company staying in St. Louis. Who do they plan to petition, I don't know. I had heard hints from St. Louis that "The Fourth" had a nuclear option up his sleeve to thwart a deal. Given that the family owns a tiny minority of shares which do not have super-voting privileges, and given the board of directors is up for election in any given year, what could that nuclear option be? It turned out the nuclear option was to buy the remaining 50% of Mexico City's Grupo Modelo (brewer of Corona) that AB does not already own. Such an acquisition would raise AB's price tag $10 billion or so, which would be difficult for InBev to secure financing for in today's tight credit market. The Mexican families which control Modelo have about as good of a relationship with the Busch family as does the InBev management, so a deal isn't likely.
Unfortunately for Anheuser-Busch upper-management, protectionist politicians, and sentimental consumers, $65 / share is a price difficult to refuse. Due to consumer preferences shifting away from macrobrews toward craft brews and imports, spirits, and wine, AB has seen sluggish growth at best. AB's stock price has hovered around $50 for almost a decade. The main reason $65 is difficult to refuse is that there doesn't seem to be an exciting new strategy for growing the business. The most impactful new product of the last five years was Bud Select, a cannibalizing brand which I can't discern in taste from Bud Light. AB secured distribution rights for Monster energy drinks and, ironically, InBev beers in the US - both moves are hardly on the scale needed to significantly boost growth for the nation's leading brewer in an increasingly competitive global marketplace. AB briefly flirted with Brazil in the nineties, only to pull out and never return. AB does own 27% in China's #2 brewer, but margins in China are razor-thin and that asset won't bear significant financial results for a long time. On the other hand, InBev out-maneuvered Anheuser-Busch by dominating Latin America while consolidating a significant chunk of Europe. Soaring food prices (rice, corn, barley and hops) and a weak US dollar combined to create a perfect storm in which InBev is in the position to acquire AB outright, as opposed to the two companies' merger talks of yester-years.
The only rational reason the deal wouldn't happen lies in the cultural differences between the companies. InBev is known as a hyper-effective cost-cutter. They have closed centuries-old breweries in Europe and become a super-efficient holding company that just happens to sell beer. InBev management has been rumored to believe there is a potential $1.4 billion to cut from Anheuser-Busch operations. To the contrary, Anheuser-Busch is a benevolent employer known for generous employee compensation and spending top dollar on marketing initiatives - a contributing factor to its powerful brands. Brand management is Anheuser-Busch's business, core competence and passion. In my first year of employment in Contemporary Marketing, I had a $300 / week expense account for the bars. After a few months, I learned the $300 was more of a minimum than a maximum. One week I spent $1500 and didn't even receive a phone call about it. And every St. Louisan has heard the stories of AB employment perks including free beer, first-class flights, generous pay, tickets to various entertainment, etc. InBev would certainly find cuts, but would these two cultures blend? A private-equity-firm-esque, holding-company mentality and a tradition-rich, patriotic, proud character? The inevitable culture clash presents the only rational reason the two shouldn't join.
It has been reported this week that the world's richest man Warren Buffet, whose Berkshire Hathaway is AB's second-largest shareholder owning 5% of the company, supports a deal. Other large shareholders - the majority of which do not live in the St. Louis area - have been reported to support a deal as well. Aside from political reasons, there is no compelling financial or strategic reason for the deal to not happen. Anheuser-Busch has been almost exclusively focused on US market share in an age of globalization. In my time with the company, every strategic move seemed to be aimed at Miller, Coors, or boosting sales in the mature US market. Meanwhile, I can't order a Budweiser anywhere in South America. (However, I should be able to as soon as Budweiser is in the InBev portfolio.) Without considering how much imaginary value lies in the temporary economic worries of protectionist Americans or sentimentality for an "American company" (regardless how competitive it would not be in the future), the best value for the Anheuser-Busch shareholders and the best opportunity for the Budweiser brand lies in the deal with InBev.
Insightful article by a St. Louis native and financial analyst in favor of a deal:
Sobering Thought: Anheuser-Busch sale makes sense (by David Weidner)
Monday, June 9, 2008
Steve Ballmer: Victim of an Eager Press
Steve Ballmer was virtually crucified in the business press in the days after he walked away from negotiations to buy Yahoo!. At the time, I was appalled at the headlines and how they were treating the guy. Dozens of articles reported on his failure to acquire the #2 search engine. It seemed presumptive because nobody knows what happened at the negotiating table. Just because he didn't come away from the table with Yahoo! under the Microsoft umbrella doesn't mean he failed. How do we know he didn't do a prudent job? How do we know the terms weren't unreasonable? If the only acceptable outcome was in securing the deal, why even go to the negotiating table? The strongest weapon in the negotiating table is the threat to walk away. It is to be brandished and displayed. And if the terms are ridiculous, you have to use it.
Jerry Yang, co-founder and CEO of Yahoo!, appears to be emotionally invested in his company. He is worth $2.3 billion so a financial incentive to sell his company isn't there. He is probably more interested in returning Yahoo! to its pre-Google glory. There is a pending class action suit against the Yahoo! board for failing to protect shareholder interests. It seems Yang required exorbitant employee compensation for Yahoo! employees who left and who stayed. Yang also organized a massive employee walkout to protest the proposed buyout. I read that, after Ballmer abandoned the talks, high fives were exchanged among many of the executives. Under these circumstances, it seems only right that Ballmer left without a deal.
After a week of Ballmer receiving a lashing in the press, I enjoyed seeing his ultimate vindication. Ballmer himself couldn't have written a better development to the story. Carl Icahn bought several million shares and started a proxy fight. Icahn accused Yang of not looking out for shareholder interest and slated a new board, up for election in August. Icahn has stated that Yang should not be CEO regardless of how the Microsoft deal turns out. The fight has started all over again and Microsoft is in an even better position to negotiate. If Microsoft ends up paying less for Yahoo! than their final offer before walking away, Ballmer will come out in a better position than the press itself could have imagined.
Jerry Yang, co-founder and CEO of Yahoo!, appears to be emotionally invested in his company. He is worth $2.3 billion so a financial incentive to sell his company isn't there. He is probably more interested in returning Yahoo! to its pre-Google glory. There is a pending class action suit against the Yahoo! board for failing to protect shareholder interests. It seems Yang required exorbitant employee compensation for Yahoo! employees who left and who stayed. Yang also organized a massive employee walkout to protest the proposed buyout. I read that, after Ballmer abandoned the talks, high fives were exchanged among many of the executives. Under these circumstances, it seems only right that Ballmer left without a deal.
After a week of Ballmer receiving a lashing in the press, I enjoyed seeing his ultimate vindication. Ballmer himself couldn't have written a better development to the story. Carl Icahn bought several million shares and started a proxy fight. Icahn accused Yang of not looking out for shareholder interest and slated a new board, up for election in August. Icahn has stated that Yang should not be CEO regardless of how the Microsoft deal turns out. The fight has started all over again and Microsoft is in an even better position to negotiate. If Microsoft ends up paying less for Yahoo! than their final offer before walking away, Ballmer will come out in a better position than the press itself could have imagined.
Friday, April 4, 2008
MySpace vs. Facebook
Social networking sites have become quite a phenomenon in the last five years. Most notably, MySpace and Facebook have emerged as the front-runners in America. Will there always be room for two? It's not very convenient to regularly check both accounts plus an email account. Each company is copying some of the other's features while differentiating on their own unique features. There has been some criticism in the business press about the these sites' profitability, asserting they are overvalued. I do not know the economics of each business. But as a user of each for at least one year, I will analyze the pros and cons of each in hopes of yielding insight into, if there can only be one, which one will emerge the victor.
Before creating a MySpace profile two years ago, I held the common attitude that these sites were for kids and a waste of time with no real utility. My story of how I got involved is a common story for most users. Somebody sat me down one day and created a profile for me, which I never checked for several months. Once in a while, I would be with a different friend who would make me log in and add them as a friend. I never logged in on my own or surfed the site. Then one night I met a girl in a bar. Our conversation was so interesting that we went back to her apartment and talked until 3am. It is rare to meet somebody with whom you have so much in common and are so interested in each others' ideas and perspectives. We obviously exchanged phone numbers, but she also happened to be an avid MySpace user and she logged in and added me. I slept on her couch and left before she woke up. Over the next few weeks, we played phone tag but never succeeded in hanging out. When this happens, you usually stop calling each other and the friendship fizzles out. However, we kept a dialogue on MySpace, which is perfect for short greetings, thoughts, and staying in touch. The telephone medium would have run out of gas by the time we actually made time to hang out again. We got to know each other much better and are still friends today. The point of this story is that MySpace saved our friendship and sold me on the utility of social networking sites.
The main utility of these sites, which they all have in common, is staying in touch with friends. Residences, phone numbers, and email addresses change. You can lose friends forever. However, if you are friends with somebody on MySpace or Facebook, then you or your friend has to go out of their way to delete the other from their list of friends to lose the connection. I have friends in countries all over the world. I made particularly good friends with three people from France one semester. When will I be in France? I have no idea. But when I do, I have access to them via Facebook and we will reunite if possible.
I became active on MySpace around July 2006. I joined and became active on Facebook around January 2007. Before I joined Facebook, everybody I knew was on MySpace and I didn't see much of a need for another social networking website. However, I was in grad school and the new friends I was making were only on Facebook. At the time, Facebook only allowed members with a university email address. Facebook didn't have all the stalkers looking for a date that has come to personify MySpace. The perception seemed to be that Facebook was legitimate or quasi-professional while MySpace was sleazy and tacky. The perception isn't necessarily unfounded. MySpace is absolutely plagued with spam, phishing scams, and porn links. Since joining MySpace, I have regularly been friend-requested by a profile picture of a girl in a thong who thinks I'm cute and wants to chat or show me her webcam. This has illegitimized the "New Friend Requests!" icon. There is an endless array of links to promote Macy's cards, penis enlargement, and the ever sought-after 'profile tracker'. Phishing is so widespread that I was phished a few months ago, and I'm hip to the scam! I haven't engaged much in the applications popular on Facebook since the company went public, but I don't think I have seen any of this junk marketing on Facebook. Facebook is pure.
The initial draw and appeal of MySpace is that it simplifies creating a personal website. Websites for Dummies. There are thousands of backgrounds to choose from. You pick a song. You can put anything - music playlists, video, images, art - on the webpage to create an online extension of yourself. You can find pink, feminine profiles for girls who are friends with dark, gothic profiles who are friends with passionate sports fans who are friends with thugged out, hip hop profiles. Hence, the name MySpace. Research shows this is especially popular with high schoolers. On the other hand, Facebook does not allow for much customization. No matter how crazy you want your Facebook profile to look, it's not going to look much different than everybody else's. A standard white and blue background is the main reason Facebook has this quasi-professional brand image while MySpace is something you don't even want professional contacts to think you're on. There is another advantage to Facebook's standard background: load time. America doesn't have the broadband penetration of South Korea. Facebook pages consistently load relatively quickly. MySpace can be annoying in this respect. MySpace places full color ads and sometimes even video on many of its pages. Add the user's own videos, a song, and an intricate profile background and the page can take longer to load than anyone has patience for. I have sometimes clicked to view someone's profile and seen the screen go white, with only the webpage title in the top blue bar. I can tell it's not worth it and immediately click the 'Back' button. The success of Google over other search sites is obviously attributed to their superior algorithm technology of PageRank, but load time played its part. Their minimalist page allowed for faster searches. You don't need PageRank to find pizza in the neighborhood. If a consumer didn't have the fastest internet connection, he went to Google to find pizza as opposed to Alta Vista, Yahoo!, or Excite. There are pros and cons to the degree of customization allowed by MySpace vs. Facebook. However, in my experience, the novelty of creating your own personalized page wears off.
Although customization is a draw to MySpace, music is its primary appeal for me. In fact, I am listening to music on MySpace as I write this. I owe part of my MBA to MySpace for giving me free music while I conducted research, cranked out papers and developed presentations. You can find hundreds of thousands of musicians on MySpace from Billboard veterans to your local open-mic warriors. When I hear a song I must hear again, I look them up on MySpace and listen to it as many times as I want, as well as a few of their other selections. Some indie-artists have their entire catalog on MySpace - free. If an artist is in music as a career, that artist is on MySpace. Yesterday (April 3, 2008), MySpace announced the launch of a music service to rival Apple's iTunes. Although it came the same week that Apple surpassed Wal-Mart as the world's leading music retailer, many analysts believe MySpace could pose a threat. If MySpace does make gains against iTunes, it could gain a treasure chest to invest against Facebook. Likewise, it could also lose sight of the social networking front in favor of music.
As important as MySpace is to me for music, Facebook is equally useful for pictures. Hence, the name Facebook. Facebook has the most interesting feature of 'tagging' photos with your friends. For example, you can upload a picture of friends and tag each friend who is in the picture. Now that photo is available to view on their profile as well. The photo is available on the profile of each person who was tagged in the photo. This feature is crucial to me because I do not own a camera. Even when I did own a camera, I never used it. Before I lost it, I once went on a two week trip to Europe and never took it out of the suitcase. You can imagine how great it is to get pictures of myself with friends without ever having to take any. Sometimes somebody will tag me with a picture that I won't remember was taken. Whenever somebody asks for a picture of me or I need one for some reason, I go to my Facebook profile where I have access to my friends' pictures of me. Some people on Facebook, those who have lots of friends and always seem to find themselves in front of a camera, have over a thousand pictures available!
Facebook has, inarguably, superior functionality and use over MySpace. The code team and programmers at Facebook have developed a more efficient software than MySpace. This is not debatable. I recently threw a Going-Away Party for myself and publicized it as I always publicize parties - I invite everybody I know and see who turns out. It took more than twice the time on MySpace to invite less than half as many people as Facebook. Plus, Facebook had a feature to invite people who aren't on Facebook by using their email addresses. Performing every function - messaging, commenting, viewing pics, and overall navigation - is more efficient and faster on Facebook than MySpace. I am no expert in computer programming, but I can tell a better product when I see one.
It is ironic that Facebook enjoys a safer brand image because it is the site that gives me the most caution concerning privacy. Each site has privacy controls to allow users to lock their profiles to their friends, but they differ in how much privacy is afforded among friends. The home screen of Facebook is the News Feed, in which every user sees a list of stories concerning all of their friends. For example, John Doe is now friends with Jane Doe, or John Doe recently became a fan of this organization. Sometimes, I don't want what I do on Facebook to be broadcasted to every one of my friends and sometimes people who aren't friends. In its defense, Facebook has privacy controls over what is displayed about you in the News Feed. However, you cannot completely delete yourself from the News Feed. Plus, as a company, Facebook seems less concerned about privacy and has gotten itself into trouble more than once. Most famously, an outcry forced Facebook to retrench concerning a News Feed feature called Beacon. Beacon would publish news stories to your friends from external websites like eBay, Travelocity, Blockbuster, Overstock.com, and Fandango. The idea was to be the ultimate word-of-mouth medium. But would you want every plane ticket or book you buy online to be broadcasted to your friends?
I also have profiles I seldom check on LinkedIn and Orkut. LinkedIn is a strictly professional networking site which I wouldn't put in the same category as MySpace or Facebook. Orkut is the social networking website of Brazil. As I understand it, it is the only one that matters and every Brazilian is on it. I created an Orkut while in Brazil with the help of friends and I only keep it to stay in contact with those Brazilian friends. I have two interesting stories about Orkut. One is the 'Recent Visitors' feature. At the top of the home screen, Orkut tells you who has been to your page. This is a highly desired feature in America that many spam artists have exploited with the promise of the MySpace Profile Tracker, which to my understanding does not exist. It comes standard with Orkut and prevents any anonymous viewing of others' profiles. Another interesting story is a message I received on Orkut. From Margareth, it read "Hi... want to be my friend? You leave in America? Kisses Kisses Bye Bye." The beauty's profile didn't seem like spam and I noticed one of her 'Communities' was titled 'I LOVE GRINGOS' with a picture of Richard Gere in a tuxedo. Orkut seems to be exclusively in Brazil and, although Google owns it, doesn't seem to pose a threat to MySpace or Facebook.
Social networking websites are here to stay. MySpace came before Facebook and has over 225 million profiles! Lately, however, Facebook's momentum and buzz has eclipsed MySpace. When analyzing all the different features, I would think that a better product in functionality and long-lasting appeal would triumph. Facebook seems to me to be better positioned, but a lot can change in the war to be the king of cyber-social lives.
Before creating a MySpace profile two years ago, I held the common attitude that these sites were for kids and a waste of time with no real utility. My story of how I got involved is a common story for most users. Somebody sat me down one day and created a profile for me, which I never checked for several months. Once in a while, I would be with a different friend who would make me log in and add them as a friend. I never logged in on my own or surfed the site. Then one night I met a girl in a bar. Our conversation was so interesting that we went back to her apartment and talked until 3am. It is rare to meet somebody with whom you have so much in common and are so interested in each others' ideas and perspectives. We obviously exchanged phone numbers, but she also happened to be an avid MySpace user and she logged in and added me. I slept on her couch and left before she woke up. Over the next few weeks, we played phone tag but never succeeded in hanging out. When this happens, you usually stop calling each other and the friendship fizzles out. However, we kept a dialogue on MySpace, which is perfect for short greetings, thoughts, and staying in touch. The telephone medium would have run out of gas by the time we actually made time to hang out again. We got to know each other much better and are still friends today. The point of this story is that MySpace saved our friendship and sold me on the utility of social networking sites.
The main utility of these sites, which they all have in common, is staying in touch with friends. Residences, phone numbers, and email addresses change. You can lose friends forever. However, if you are friends with somebody on MySpace or Facebook, then you or your friend has to go out of their way to delete the other from their list of friends to lose the connection. I have friends in countries all over the world. I made particularly good friends with three people from France one semester. When will I be in France? I have no idea. But when I do, I have access to them via Facebook and we will reunite if possible.
I became active on MySpace around July 2006. I joined and became active on Facebook around January 2007. Before I joined Facebook, everybody I knew was on MySpace and I didn't see much of a need for another social networking website. However, I was in grad school and the new friends I was making were only on Facebook. At the time, Facebook only allowed members with a university email address. Facebook didn't have all the stalkers looking for a date that has come to personify MySpace. The perception seemed to be that Facebook was legitimate or quasi-professional while MySpace was sleazy and tacky. The perception isn't necessarily unfounded. MySpace is absolutely plagued with spam, phishing scams, and porn links. Since joining MySpace, I have regularly been friend-requested by a profile picture of a girl in a thong who thinks I'm cute and wants to chat or show me her webcam. This has illegitimized the "New Friend Requests!" icon. There is an endless array of links to promote Macy's cards, penis enlargement, and the ever sought-after 'profile tracker'. Phishing is so widespread that I was phished a few months ago, and I'm hip to the scam! I haven't engaged much in the applications popular on Facebook since the company went public, but I don't think I have seen any of this junk marketing on Facebook. Facebook is pure.
The initial draw and appeal of MySpace is that it simplifies creating a personal website. Websites for Dummies. There are thousands of backgrounds to choose from. You pick a song. You can put anything - music playlists, video, images, art - on the webpage to create an online extension of yourself. You can find pink, feminine profiles for girls who are friends with dark, gothic profiles who are friends with passionate sports fans who are friends with thugged out, hip hop profiles. Hence, the name MySpace. Research shows this is especially popular with high schoolers. On the other hand, Facebook does not allow for much customization. No matter how crazy you want your Facebook profile to look, it's not going to look much different than everybody else's. A standard white and blue background is the main reason Facebook has this quasi-professional brand image while MySpace is something you don't even want professional contacts to think you're on. There is another advantage to Facebook's standard background: load time. America doesn't have the broadband penetration of South Korea. Facebook pages consistently load relatively quickly. MySpace can be annoying in this respect. MySpace places full color ads and sometimes even video on many of its pages. Add the user's own videos, a song, and an intricate profile background and the page can take longer to load than anyone has patience for. I have sometimes clicked to view someone's profile and seen the screen go white, with only the webpage title in the top blue bar. I can tell it's not worth it and immediately click the 'Back' button. The success of Google over other search sites is obviously attributed to their superior algorithm technology of PageRank, but load time played its part. Their minimalist page allowed for faster searches. You don't need PageRank to find pizza in the neighborhood. If a consumer didn't have the fastest internet connection, he went to Google to find pizza as opposed to Alta Vista, Yahoo!, or Excite. There are pros and cons to the degree of customization allowed by MySpace vs. Facebook. However, in my experience, the novelty of creating your own personalized page wears off.
Although customization is a draw to MySpace, music is its primary appeal for me. In fact, I am listening to music on MySpace as I write this. I owe part of my MBA to MySpace for giving me free music while I conducted research, cranked out papers and developed presentations. You can find hundreds of thousands of musicians on MySpace from Billboard veterans to your local open-mic warriors. When I hear a song I must hear again, I look them up on MySpace and listen to it as many times as I want, as well as a few of their other selections. Some indie-artists have their entire catalog on MySpace - free. If an artist is in music as a career, that artist is on MySpace. Yesterday (April 3, 2008), MySpace announced the launch of a music service to rival Apple's iTunes. Although it came the same week that Apple surpassed Wal-Mart as the world's leading music retailer, many analysts believe MySpace could pose a threat. If MySpace does make gains against iTunes, it could gain a treasure chest to invest against Facebook. Likewise, it could also lose sight of the social networking front in favor of music.
As important as MySpace is to me for music, Facebook is equally useful for pictures. Hence, the name Facebook. Facebook has the most interesting feature of 'tagging' photos with your friends. For example, you can upload a picture of friends and tag each friend who is in the picture. Now that photo is available to view on their profile as well. The photo is available on the profile of each person who was tagged in the photo. This feature is crucial to me because I do not own a camera. Even when I did own a camera, I never used it. Before I lost it, I once went on a two week trip to Europe and never took it out of the suitcase. You can imagine how great it is to get pictures of myself with friends without ever having to take any. Sometimes somebody will tag me with a picture that I won't remember was taken. Whenever somebody asks for a picture of me or I need one for some reason, I go to my Facebook profile where I have access to my friends' pictures of me. Some people on Facebook, those who have lots of friends and always seem to find themselves in front of a camera, have over a thousand pictures available!
Facebook has, inarguably, superior functionality and use over MySpace. The code team and programmers at Facebook have developed a more efficient software than MySpace. This is not debatable. I recently threw a Going-Away Party for myself and publicized it as I always publicize parties - I invite everybody I know and see who turns out. It took more than twice the time on MySpace to invite less than half as many people as Facebook. Plus, Facebook had a feature to invite people who aren't on Facebook by using their email addresses. Performing every function - messaging, commenting, viewing pics, and overall navigation - is more efficient and faster on Facebook than MySpace. I am no expert in computer programming, but I can tell a better product when I see one.
It is ironic that Facebook enjoys a safer brand image because it is the site that gives me the most caution concerning privacy. Each site has privacy controls to allow users to lock their profiles to their friends, but they differ in how much privacy is afforded among friends. The home screen of Facebook is the News Feed, in which every user sees a list of stories concerning all of their friends. For example, John Doe is now friends with Jane Doe, or John Doe recently became a fan of this organization. Sometimes, I don't want what I do on Facebook to be broadcasted to every one of my friends and sometimes people who aren't friends. In its defense, Facebook has privacy controls over what is displayed about you in the News Feed. However, you cannot completely delete yourself from the News Feed. Plus, as a company, Facebook seems less concerned about privacy and has gotten itself into trouble more than once. Most famously, an outcry forced Facebook to retrench concerning a News Feed feature called Beacon. Beacon would publish news stories to your friends from external websites like eBay, Travelocity, Blockbuster, Overstock.com, and Fandango. The idea was to be the ultimate word-of-mouth medium. But would you want every plane ticket or book you buy online to be broadcasted to your friends?
I also have profiles I seldom check on LinkedIn and Orkut. LinkedIn is a strictly professional networking site which I wouldn't put in the same category as MySpace or Facebook. Orkut is the social networking website of Brazil. As I understand it, it is the only one that matters and every Brazilian is on it. I created an Orkut while in Brazil with the help of friends and I only keep it to stay in contact with those Brazilian friends. I have two interesting stories about Orkut. One is the 'Recent Visitors' feature. At the top of the home screen, Orkut tells you who has been to your page. This is a highly desired feature in America that many spam artists have exploited with the promise of the MySpace Profile Tracker, which to my understanding does not exist. It comes standard with Orkut and prevents any anonymous viewing of others' profiles. Another interesting story is a message I received on Orkut. From Margareth, it read "Hi... want to be my friend? You leave in America? Kisses Kisses Bye Bye." The beauty's profile didn't seem like spam and I noticed one of her 'Communities' was titled 'I LOVE GRINGOS' with a picture of Richard Gere in a tuxedo. Orkut seems to be exclusively in Brazil and, although Google owns it, doesn't seem to pose a threat to MySpace or Facebook.
Social networking websites are here to stay. MySpace came before Facebook and has over 225 million profiles! Lately, however, Facebook's momentum and buzz has eclipsed MySpace. When analyzing all the different features, I would think that a better product in functionality and long-lasting appeal would triumph. Facebook seems to me to be better positioned, but a lot can change in the war to be the king of cyber-social lives.
Monday, March 3, 2008
Budweiser & Clamato
In January 2008, Anheuser-Busch introduced Budweiser & Clamato nationwide - a prepackaged, Mexican-style beer cocktail. Less than two months prior in November 2007, I first tried an authentic michelada. I had been dating an exchange student from Mexico who insisted we have one. The name seems to be an abbreviation of "mi chela helada," or my frosty beer. I had never heard of it but was open to the idea. Although the restaurant was empty, we waited ten full minutes after she ordered our drinks. This particular restaurant didn't have a full time bartender, so the server took his time to make our beers right. Then he set two goblets of an iced red liquid on our table - rim salted, garnished with a squeezed lime-half and a straw. It was spicy. A Bloody Mary with beer instead of vodka. I liked it. In a Google search that night, I discovered there was Worcestershire in it. Over the next few weeks, I started to make my own micheladas at home. I used Budweiser, Bloody Mary mix, hot sauce, A1, Worcestershire, pepper, salt, lime, and anything else I would throw into a Bloody Mary. I used Blood Mary mix because I don't keep real salsa around, which is the traditional ingredient to give it the tomato flavor.
In terms of size, Hispanics / Latinos have recently surpassed African-Americans as the largest minority in America. According to the Pew Research Center, the Latino population is expected to make up 29% of the general population by 2050. Spanish is the first language in hundreds of neighborhoods in states like California, Arizona, Texas, Illinois, Florida, and New York. Having worked in the beer business in Latino neighborhoods around Los Angeles and Denver, I saw Clamato coolers in every liquor store, strategically placed near the counter. 60% of the Clamato purchased is used as a mixer. So it seems natural that the nation's leading brewer, in an attempt to reach the nation's leading growth demographic, teamed up with the leading producer of a key ingredient for that demographic's consumer tastes.
I was surprised to see Anheuser-Busch's new offering in a 24 oz. can at the local QT in my dad’s neighborhood. My new drink had become a corporate macrobrew. One half of the can is in English, one half Spanish. Budweiser & Clamato, as one would guess, is a mixture of Budweiser and Clamato - Cadbury Schweppes’ trademarked tomato and clam juice beverage. I couldn't believe Anheuser-Busch, a company where I worked for two years, would come out with such a product with the Budweiser name on it. Anheuser-Busch is one of the more conservative, risk-averse companies in the country. Any variations on the core brands’ image are done very slowly, probably for good reason. Although the Latino segment in the US makes up a significant portion of the beer business, it seems that AB has kept the Latino advertising messages in strictly Latino neighborhoods. The company may be trying to straddle a fence between appealing to Latino consumers and maintaining a true American brand image to the typical American beer drinkers. Needless to say, illegal immigration from Mexico is one of the more controversial political topics right now. So rolling out a Mexican-style Budweiser brand with the Spanish translation seems riskier than what we would expect from AB. High Ridge, Missouri, the city where I found Budweiser & Clamato, has a Latino population of only 1.2%. The income per capita is $23,568 (compared to a national average of $36,276). High Ridge is an almost all white, blue-collar town with Budweiser & Clamato in every store I have been in. When Anheuser-Busch goes to market, they go to market.
How will the michelada sell in the general market? I like it, but almost every person I have sampled with one has disliked it, and many have literally cursed it. In this situation, the strong Anheuser-Busch distribution network can be a double-edged sword. Having worked in the ground floor of this network, I have intimate knowledge of how a brand is introduced. First, at every wholesaler in every city in America, there will be a company-wide sales meeting to present the new product and detail its qualities. The various point-of-sale (POS) will be displayed. Samples will be given out. Incentives and sales contests will be announced. And, of course, the overall corporate strategy of the brand will be explained. The sales force will understand which competitor they are targeting and why. Over the next two months, the soldiers in the sales trenches will secure product placements in as many retailers as possible. The neons, mirrors, banners, cooler stickers, table tents, and coasters will flood the market (table tents, coasters, and on-premise POS won’t apply to brands like Budweiser & Clamato). The brand will be everywhere almost overnight. In some cases, it will take the shelf-space of slow-selling competitor brands. Otherwise, the sales rep will have to sacrifice his own brands’ space to make room for the new product. There isn't really any strategy in which stores to target when it comes to new brands. The sales rep needs to boost his numbers for the introduction as high as possible so the new brand is everywhere almost overnight.
The double-edged sword of this strong push comes into play when a brand has potential but needs more time than average to incubate and build a following. Tequiza is the example that readily comes to mind. Introduced in 1999, Tequiza hoped to capitalize on the Latinization of tastes in America. Its agave and lime flavors made for a sweeter beer. However, the brand did not sell as well as hoped. Tequiza is still available and profitable, but it is not a major moneymaker or even a household name. What happens in this situation? After weeks of a stagnant slot on the beer shelf, each and every single liquor store manager independently decides that Tequiza doesn’t sell and kicks it out of the store forever. Soon, Tequiza is hard to find. More importantly, each and every single sales rep loses all confidence in the brand and stops selling it. After 6 – 8 months, Tequiza doesn’t stand a chance of becoming a major brand. The brand is finished. Fast forward to 2007: SAB Miller introduced Miller Chill. Miller Chill is selling well and ruffling feathers inside AB, rightfully so. Because Miller Chill is the same beer as Tequiza! I have tasted both and I contend that I would not be able to discern the difference in a blind taste test. Although Tequiza lists its unique ingredients to be blue agave nectar and lime while Miller Chill uses lime and salt, the difference in taste is negligible. The differences in key success factors are in branding and, more importantly, timing. While AB tried to create a more authentic brand with the name ‘Tequiza’ (an abbreviation of ‘tequila’ and ‘cerveza’), SABMiller decided to pursue a hip image with the name, Miller Chill. However, I don’t believe that branding was as crucial to the success of these beers as was timing. 1999 may have been too early to introduce this style of beer. While it is good to be on the cutting edge of consumer preferences, companies like AB need to be able to go to market because that is the only way they go to market at all. Eight extra years of growing Latino influence on American tastes may have been the difference between a marginal product and a successful one.
I wonder if 2008 is too early for Budweiser & Clamato. I feel like I should say something about the presence of clam broth in a beer affecting the sales performance, but I doubt it’s important. One liquor storeowner in St. Louis city told me the brew is selling well. We will wait and see whether the general market is ripe enough to support the mass marketing of micheladas.
In terms of size, Hispanics / Latinos have recently surpassed African-Americans as the largest minority in America. According to the Pew Research Center, the Latino population is expected to make up 29% of the general population by 2050. Spanish is the first language in hundreds of neighborhoods in states like California, Arizona, Texas, Illinois, Florida, and New York. Having worked in the beer business in Latino neighborhoods around Los Angeles and Denver, I saw Clamato coolers in every liquor store, strategically placed near the counter. 60% of the Clamato purchased is used as a mixer. So it seems natural that the nation's leading brewer, in an attempt to reach the nation's leading growth demographic, teamed up with the leading producer of a key ingredient for that demographic's consumer tastes.
I was surprised to see Anheuser-Busch's new offering in a 24 oz. can at the local QT in my dad’s neighborhood. My new drink had become a corporate macrobrew. One half of the can is in English, one half Spanish. Budweiser & Clamato, as one would guess, is a mixture of Budweiser and Clamato - Cadbury Schweppes’ trademarked tomato and clam juice beverage. I couldn't believe Anheuser-Busch, a company where I worked for two years, would come out with such a product with the Budweiser name on it. Anheuser-Busch is one of the more conservative, risk-averse companies in the country. Any variations on the core brands’ image are done very slowly, probably for good reason. Although the Latino segment in the US makes up a significant portion of the beer business, it seems that AB has kept the Latino advertising messages in strictly Latino neighborhoods. The company may be trying to straddle a fence between appealing to Latino consumers and maintaining a true American brand image to the typical American beer drinkers. Needless to say, illegal immigration from Mexico is one of the more controversial political topics right now. So rolling out a Mexican-style Budweiser brand with the Spanish translation seems riskier than what we would expect from AB. High Ridge, Missouri, the city where I found Budweiser & Clamato, has a Latino population of only 1.2%. The income per capita is $23,568 (compared to a national average of $36,276). High Ridge is an almost all white, blue-collar town with Budweiser & Clamato in every store I have been in. When Anheuser-Busch goes to market, they go to market.
How will the michelada sell in the general market? I like it, but almost every person I have sampled with one has disliked it, and many have literally cursed it. In this situation, the strong Anheuser-Busch distribution network can be a double-edged sword. Having worked in the ground floor of this network, I have intimate knowledge of how a brand is introduced. First, at every wholesaler in every city in America, there will be a company-wide sales meeting to present the new product and detail its qualities. The various point-of-sale (POS) will be displayed. Samples will be given out. Incentives and sales contests will be announced. And, of course, the overall corporate strategy of the brand will be explained. The sales force will understand which competitor they are targeting and why. Over the next two months, the soldiers in the sales trenches will secure product placements in as many retailers as possible. The neons, mirrors, banners, cooler stickers, table tents, and coasters will flood the market (table tents, coasters, and on-premise POS won’t apply to brands like Budweiser & Clamato). The brand will be everywhere almost overnight. In some cases, it will take the shelf-space of slow-selling competitor brands. Otherwise, the sales rep will have to sacrifice his own brands’ space to make room for the new product. There isn't really any strategy in which stores to target when it comes to new brands. The sales rep needs to boost his numbers for the introduction as high as possible so the new brand is everywhere almost overnight.
The double-edged sword of this strong push comes into play when a brand has potential but needs more time than average to incubate and build a following. Tequiza is the example that readily comes to mind. Introduced in 1999, Tequiza hoped to capitalize on the Latinization of tastes in America. Its agave and lime flavors made for a sweeter beer. However, the brand did not sell as well as hoped. Tequiza is still available and profitable, but it is not a major moneymaker or even a household name. What happens in this situation? After weeks of a stagnant slot on the beer shelf, each and every single liquor store manager independently decides that Tequiza doesn’t sell and kicks it out of the store forever. Soon, Tequiza is hard to find. More importantly, each and every single sales rep loses all confidence in the brand and stops selling it. After 6 – 8 months, Tequiza doesn’t stand a chance of becoming a major brand. The brand is finished. Fast forward to 2007: SAB Miller introduced Miller Chill. Miller Chill is selling well and ruffling feathers inside AB, rightfully so. Because Miller Chill is the same beer as Tequiza! I have tasted both and I contend that I would not be able to discern the difference in a blind taste test. Although Tequiza lists its unique ingredients to be blue agave nectar and lime while Miller Chill uses lime and salt, the difference in taste is negligible. The differences in key success factors are in branding and, more importantly, timing. While AB tried to create a more authentic brand with the name ‘Tequiza’ (an abbreviation of ‘tequila’ and ‘cerveza’), SABMiller decided to pursue a hip image with the name, Miller Chill. However, I don’t believe that branding was as crucial to the success of these beers as was timing. 1999 may have been too early to introduce this style of beer. While it is good to be on the cutting edge of consumer preferences, companies like AB need to be able to go to market because that is the only way they go to market at all. Eight extra years of growing Latino influence on American tastes may have been the difference between a marginal product and a successful one.
I wonder if 2008 is too early for Budweiser & Clamato. I feel like I should say something about the presence of clam broth in a beer affecting the sales performance, but I doubt it’s important. One liquor storeowner in St. Louis city told me the brew is selling well. We will wait and see whether the general market is ripe enough to support the mass marketing of micheladas.
Subscribe to:
Posts (Atom)