Why you REALLY need to pay attention – Sony e-reader and Amazon Kindle

"Sony Unveils Pocket Size Electronic Book Reader" is the Los Angeles Times headline.  According to Silican Alley Insider the new Apple tablet is a GREAT book reader.  Although Steve Jobs thinks book publishers are incredibly screwed up and he's less optimistic about book sales than he was music sales when he launched iTunes.  And Amazon has sold out its Kindle e-readers since they started manufacturing them two years ago. 

With all these announcements, you'd think everyone knows about e-readers and the market shift happening in publishing – from books to magazines to newspapers.  Even I've blogged about this for months – and the positive impact this has had on book sales as well as Amazon's revenues and profits.  But:

E-reader share (Link to chart and Forrester Discussion here)

Half of all people surveyed in 2Q 2009 still haven't seen or heard about e-readers.

This is important.  Imagine it's 1983, and you weren't aware about personal computers and their benefits – even though the IBM PC was Time magazine's "Man of the Year" in 1982.  We now know that early adopters of PCs developed new solutions for many problems – from analysis to word processing to advertising development to commercial graphics to in-house publishing to communicating via email — on and on and on.  Those who understood this technology early, recognized the shift it demonstrated, had early advantages on competitors.  You didn't have to compete in technology, or be a technology officianado, to take advantage of this computing shift for your advantage.

Today, ereaders are another serious market shift that early adopters can leverage.  Soon newspapers and magazines will be hard to come by, or so thin (due to printing and distribution cost) that their content will be much less than desired.  But ereaders allow you to keep up with journals you've come to trust.  And advertisers need to be prepared to follow them onto this platform – to reach people they otherwise would miss.

If you've quit reading books because you don't have the money to spend (at $20+ apiece), desire to carry them, or the time to read them, ereaders allow you to buy and carry 350 or more books at a fraction of previous prices.  You even can buy pieces of books (chapters for example) that give you what you want.  Think of the shift from long-play albums/CDs to iTunes sales of single songs as an analogy.  You can get the benefits of books without many of the reasons you may have quit reading them.

Would you like a repository of information you can call upon for your daily work?  With e-readers you can carry an entire library, something you'll not do in paper.  Or on your laptop.

Speaking of laptops – this will all be on a laptop you say – so forget ereadersDo you really think we'll all be carrying these 7 pound monsters around in 5 years?  Look at college kids today.  How many do almost all their work on a phone?  They use the computer only when forced to – for typing papers or building spreadsheets.  Laptops are increasingly becoming much more than people want – too big, too heavy, too hot, too power hungry, too short battery life, too complicated, too much software, too many bugs, too many viruses, too expensive.  Laptops will soon be like mainframes.  Look at the trend.  Sales of big screen laptops have cratered as netbooks, with tiny screens, have taken off.  People are moving away from laptops to smaller and easier to use products – like ereaders. 

Why make your salesforce, or customers, or training techs carry a laptop when an ereader will give them everything they need?  They cost less, are easier to keep working, and don't get hindered with personal apps like MS Money that you didn't put on the laptop in the first place but couldn't stop.  Given ereader prices, you might be able to consider an ereader disposable in 5 years.  Literally, you could give a customer an ereader with all the training, specs, history, design elements, etc. of your product the way we now use a brochure.  It literally might be cheaper than a 10 page glossy brochure costs to print and distribute – but with everything they need to design in your product, or operate it, or service it.  Imagine an ereader in your car glove box rather than the owner's manual you never use – but the info will be catalogued, searchable, and linked to the internet so it's always current with service information.

Market shifts affect us all.  Too often we say "oh that shift is obvious, and I'm surprised the current competitors aren't jumping on that."  Then we ignore the shift ourselves.  Competitors that make higher rates of return, and prolong those rates of return, observe these market shifts and immediately build them into future scenarios.  They think about how to use these shifts to improve their competitive position, and create White Space to test the opportunities – even when they represent Disruptive change.  These are Phoenix Principle companies – and the kind you want to be – because they grow more, make more money and have longer lives.

Learn how to spot market shifts and leverge them for your advantage.  Don't end up like GM – out of touch and into bankruptcy.  Read the new, free ebook "The Fall of GM:  What Went Wrong and How To Avoid Its Mistakes." 

Another troubling indicator – Why Microsoft is looking like GM

A typical headline from last week read "Microsoft, Yahoo to Begin Joint Assault on Google".  After a year of negotiating, the behemoth Microsoft finally came up with an accord to get some Yahoo technology in order to be more effective with its search engine product.  "Microsoft to Tap 400 Yahoo Workers in Partnership" is the Marketwatch headline today trumpeting the plan to bring Yahoo engineers to Microsoft.

Will it make a difference?  If we look at the trend, it looks doubtful (slide courtesy Silicon Alley Insider):
Search share

Of course, lots of folks think this isn't a very good idea.  (Cartoon Courtesy DenverPost.com):

MSFT.YHOO merger comic

As John Dvorak pointed out in his column: "Microsoft and Yahoo Bring Google Good News."  After all, the Google's competitors just went from 2 to 1 – a 50% reduction.  What's more, the remaining player is not known for expertise in internet technology – merely its money hoard.  Moreover, when it used its money hoard in the past it has rarely (never?) resulted in a success.  No wonder BusinessWeek headlined "Microsoft and Yahoo:  Too Little, Too Late, Too Hyped."

What's more intriguing to me is what this deal says about Microsoft.  The company has already missed the market shift in search and ad placement.  Search is "yesterday's news".  Microsoft is still trying to fight the last war, not the next one.  As it has done far too often, Microsoft remained Locked-in to its old Success Formula — all about the desktop and personal computing.  It has not been part of the market shift to new applications and new ways of personal automation.  That has been going to RIM, Apple, Oracle and other players.  Microsoft has sat on its market share in the old market, piled up cash, but not taken the actions to be a winner in the next market – the next battle for growth.  Now it's joint venture with Yahoo will strip out engineers, attempt to convert them to Microsoft ways of thinking, and put them into battle with not only the largest player in search and on-line ad placement – but the only one making money.  And the one introducing new technologies and products on a regular basis.

Someone asked me last week "Who's the next GM?"  I think they meant "who's the next big bankruptcy."  But the better question here is "Who's the giant company that everyone thinks is competitively insurmountable, but at great risk of falling from market leadership into the Whirlpool – and eventual bankruptcy?"  To that I say keep your eyes on Microsoft.

The comparisons between Microsoft and GM are striking:

  • Early market leaders
  • Developed near monopolies
  • Challenged by the trust busters
  • Created very high growth rates and huge cash hoards
  • Considered a great place to work, with great longevity
  • Bought up competitors
  • Bought up technologies, and often never took them to market
  • Became arrogant to customers
  • Implemented a strong Success Formula that everyone was expected to follow
  • Strong leaders that kept the companies "focused"
  • Dominated their local geography as employers
  • Tended to talk a lot about their past, and how what they've previously accomplished
  • Tended to ignore competitors
  • Avoided Disruptions – late to market with every product.  Tried using marketing and money to succeed rather than being first with great products and solutions
  • Never allowed White Space to develop anything new

This joint venture is not White Space.  Microsoft may want to be in Search and ad sales, but the company is still relying on its old business to "carry it through."  They have ignored Google and other competitors, and are trying to use the old Success Formula to compete with a much nimbler and more market-attuned competitor.  They have ignored Disruptive innovations, and not developed any new solutions themselves.  They have refused to allow White Space to develop new solutions for shifting market needs – instead trying to push the market to buy their solutions based on old ways of doing business.  Don't forget that MSN and it's search engine have been in the market since the beginning – it's not like they just woke up to discover the market existed.  Rather, they just started hinting that maybe, after 15 years of failing, they aren't doing the right things.

If you still own Microsoft stock, I predict a really bumpy ride.  They won't go bankrupt soon.  But GM spent 30 years going sideways for investors before finally going bankrupt.  That looks like the future at Microsoft.  If you're a vendor, expect poor returns to create a procurement environment intending to suck all profits out of your business.  If you're a customer, expect "me too" products that are late, expensive and at best "lowest common denominator" in appearance and performance.  If you're an employee, expect increased turnover, lot of infighting, increased internal politics, promotions based on reinforcing the status quo rather than results, and few opportunities for personal growth.

Employees, vendors and investors of Microsoft should read the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."  Everyone who has to deal with shifting markets needs to.

Reacting to Downturns – Honda vs. GM

"Honda's New CEO is Also Chief Innovator" is the recent Businessweek headline.  Think of the contrast with GM.  Both companies have seen their auto sales hurt this year.  Although the downdraft at GM is about 130% of that at Honda.  But the reactions to the weakness could not be different.

GM kept trying to sell more of its existing cars until it finally declared bankruptcy, dropping half its models and all its obligations. Then the same people that lead GM into bankruptcy remained in place.  While the Chairman was forced out of a job in order to obtain government loans to stay alive, he was replaced by his own #2 who is just as Locked-in as the old Chairman was.  Even worse, to me, was bringing back a 77 year old industry veteran to head marketing.  He may have been one of the more creative of the "old guard" but he was every bit as much "old guard" as anyone — to the point of belittling Tesla and those succeeding today with electric and hybrid vehicles. 

Honda reacted by replacing the CEO of Honda Motors.  But the person put into the job comes from a background in R&D.  Rather than trying to do more of the same, Honda's approach is to get product developers closer to customers — even at the very top job.  Honda isn't leaving the same people in charge, nor even people with the same backgrounds.  Honda is planning, from the outset, to use product innovation (rather than financial engineering) to get Honda Motors back on track.

And this aligns with Honda's approach to business.  Where GM was once a company with multiple businesses (IT in its ownership of EDS and aviation electronics in Hughes) GM leadership sold off those assets, using profits to subsidize the ailing auto businessComparatively, Honda has thriving businesses in robotics, factory automation, motorcycles, small yard equipment and new ventures in aircraft and elsewhere.  GM reacts to market shifts by ignoring them, and trying to do what it's always done better, faster and cheaper.  GM behaves as if its returns will do better if it can just do what it has always done – but more.  Honda reacts to market shifts by entering new markets, developing new products and getting itself aligned with market requirements.  Honda develops new solutions to changing market needs.

There is no doubt which approach is more sensible, and into which you might consider investing.  Honda uses its scenarios about the future to help it develop new products and solutions.  Honda obsesses about competition, offering new products for almost every niche opportunity and learning how to be profitable across the market spectrum.  Honda is very open to Disrupting its old Success Formula, getting into new businesses that will help it grow even when not "core" to the company's history or its current capabilities.  And Honda gives its new business leaders the White Space to succeed, with permission to do what the market requires even if different that the past and the resources to develop new solutions through ongoing market tests. 

If you have any doubts about who will grow share over the next 5 years, and who will lose share, check out the free new ebook "The Fall of GM:  What Went Wrong and How to Avoid Its Mistakes."  Pay attention to the results of America's "Cars for Clunkers" program to see who comes out a winner.  It will be important to see if this raises sales at the American companies – or elsewhere.

Call to Action – Why we have to change

"Deeper Recession Than We Thought" is the Marketwatch headline.  As government data reporters often do, today they revised the economic numbers for 2008.  We now know the start to this recession was twice as bad as reported.  The 3.9% decline was the worst economic performance since the Great Depression of the 1930s.  The consumer spending decline was the worst since 1951 (58 years – a very low percentage of those employed today were even born then.)  Business investment dropped a full 20%.  Residential investment dropped 27%.  Stark numbers.

How did business people react?  Exactly as they were trained to react.  They cut costs.  Layed people off.  Dropped new products.  Stopped R&D and product development.  They quit doing things.  What's the impact?  The decline slows, but it continues.  Just like growth begets growth, cutting begets more decline. 

Then really interesting bad things happen

"ComEd loses customers for first time in 56 years" is the Crain's headline.  There are 17,000 fewer locations buying electricity in the greater Chicago area than there were a year ago.  That is amazing.  When you see new homes being built, and new commercial buildings, the very notion that the number of electricity customers contracted is hard to fathom.  People aren't even keeping the lights on any more.  They've gone away.

In the old days we said "go west."  But that hasn't been the case.  Everyone remembers the dot.com bust ending the 1990s.  "Silicon Valley Unemployment Skyrockets" is the Silican Alley Insider lead.  Today unemployment in silicon valley is the highest on record – even higher than the dot bust days.  When even tech jobs are at a nadir, it's clear something is very different this time

The old approaches to dealing with a recession aren't working.  While optimism is always high, what we can see is that things have shifted.  The world isn't like it was before.  And applying the same approaches won't yield improved results.  "For Illinois, recession looking milder – but recovery weaker" is another Crain's headline.  Nowhere are there signs of a robust economy.

We can't expect an economic recovery on "Cars for Cash" or "Clunker" programs.  By overpaying for outdated and obsolete cars we can bring forward some purchases.  But this does not build a healthy market for ongoing purchases.  These programs aren't innovation that promotes purchase.  They are a subsidy to a lucky few so they pay significantly less for an existing product.  To recover we must have real growth.  Growth from new products that meet new customer needs in new ways.  Growth built on providing solutions that advantage the buyer.  Only by introducing innovation, and creating value, will customers (businesses or consumer) open their wallets

Advertising hasn't disappeared.  But it has gone on-line.  Today you don't have to spend as much to reach your target.  Instead of mass advertising to 1,000 in order to reach the 100 (or 15) you really want, today you can target that buyer through the web and deliver them an advertisement far cheaper.  I didn't learn about Cash for Clunkers from a TV ad, I learned about it on the web.  As did thousands of people that rushed out to take advantage of the program at its introduction – exceeding expectations.  It no longer takes inefficient mass advertising through newspapers or broadcast TV to reach customers – so that market shrinks.  But the market for on-line ads will grow. So Google grows – double digit growth – while the old advertising media keeps shrinking.  To get the economy growing businesses (like Tribune Corporation) have to shift into these new markets, and provide new products and services that help them grow.

I live in Chicago.  Years ago, in the days of The Jungle Chicago grew as an agricultural center. There was a time the West Side of Chicago was known for its smelly stockyards and slaughter houses.  But Chicago  watched its agricultural companies move away.  They moved closer to the farms.  They were replaced by steel mills in places like Gary, IN and Chicago's south side.  But those too shut down, moved to lower cost locations offshore.  These businesses were replaced with assembly plants, like the famous AT&T Hawthorne facility, and manufacturers such as machine tool makers.  Now, for the last decade, these too have been moving away.  With each wave, the less valuable work, the more menial work, shifted to another location where it could be done as good but cheaper and often faster

Historically growth continued by replacing those jobs with work tied to the shifting market – jobs that provided more value.  So now, for Chicago to grow it MUST create information jobsThe market has moved.  Kraft won't regain its glory if it keeps trying to sell more Velveeta.  Kraft has not launched a major new product in over 9 years.  Sara Lee has been shedding businesses and cutting costs for 6 years – getting smaller and losing value.  McDonalds sold its high growth business Chipotles to raise money for defending its hamburger stores by adding new coffee machines.  Motorola has let mobile telephony move to competitors as it remained too Locked-in to old technologies and old products while new companies – like Apple and RIM – brought out innovations that attracted new customes and growth. 

Growth doesn't come from waiting for the economy to improve.  Growth comes from implementing innovation that gives us new solutionsEvery market, whether geographic or product based, requires new solutions to maintain growth.  If we want our economy to improve, we must change our approach.  We can't save our way to prosperity.  Instead we must create solutions that fit future scenarios, introduce new solutions that Disrupt old patterns and use White Space to help customers shift to these products.

If we change our approach we can regain growth.  Otherwise, we can expect to keep getting what we got in 2008.

Doing what works in this recession – Tesla, Morgan Aircraft, Starbucks vs. GM

Business leaders too often react to a recession by cutting costs, stopping spending, discontinuing new product launches — and waiting.  The theory is that the market is bad, so it's an uphill slog to try doing anything new.  Supposedly, a smart leader waits until things improve before spending again. 

An example of this thinking is at GM.  The retired executive brought back to head marketing, Bob Lutz, supports killing off the Pontiac brand to make GM smaller and leaner.  But he realized this week that there was a car in the Pontiac lineup called the G8 which was selling pretty good.  Designed in Autralia, this 2 passenger sports car had sales up 56% from last year – something no other GM car could boast.  So Lutz said he'd find a way to keep making and selling the car.  But now, Lutz has reversed position and in "GM's Lutz Makes another U-Turn" from the Wall Street Journal he says "upon further review and careful study, we simply cannot make a business
case for such a program. Not in today's market, in this economy, and
with fuel regulations what they are and will be.
" In other words, we can interpret these comments as "we at GM want to save money and try selling the cars we've got – whether you like them or not – rather than move forward with a car you may really want."  This kind of thinking is not the way to grow out of a recession.

On the other hand, we have Tesla Motors.  The company Mr. Lutz laughed at a few months ago claiming it wasn't a serious car company.  Tesla has one car for sale today, a superfast 2 seater sports car that is 100% electric.  Today in Marketing Daily we read "Tesla Plugs Dealership into Manhanttan's Chelsea".  Tesla is selling 100% of its production, and it is supporting that by opening a new, stylish dealership in Manhattan.  While GM is eliminating a hot seller, Tesla continues to promote theirs.  While GM closes dealerships, Tesla opens a new one.  Tesla is making a car, albeit a low production model, that people want.  It is going where the market is shifting.  That's how you get out of a recession, you give customers what they want

I met another great example last week at Morgan Aircraft.  You've never heard of this company unless you've been to an air show.  While the makers of private aircraft like Cessna and Gulfstream are shutting down production, Morgan has raised millions of dollars while developing a new aircraft  slated for market introduction in about 4 years (flying in tests today, still needing FAA approval).  But the Morgan isn't a typical plane as you know it – what's called a "fixed wing" aircraft.  The Morgan is able to take off vertically, like a helicopter, then fly horizontally like a plane.  This dramatically improves the use of a plane by eliminating airport runways, and thus the commuting requirements to/from airports for business flyers.  Morgan has identified the early users of their aircraft, which will allow successful introduction as it expands the market for its technology.  Morgan brings to market something new, something different, something that gives buyers a reason to buy – better economics and improved ease of use.  That's how you raise money and build a business in a recession – by offering something new that creates demand for your product.

Perhaps even Starbucks' new leadership is getting the idea.  After months of doing "the wrong stuff" (as reported in this blog), The Seattle Times reports "Starbucks Tests New Name for Stores."  Only this is way beyond a name test.  The new stores have a different menu, including liquor, a different ambiance, and even different coffee making equipment.  This is something new.  Will it matter?  We don't yet know, because (a) we haven't heard of any Disruptions in Starbucks to make us think this is a really serious initiative that could displace the earlier commitment to "coffee", (b) we don't know how much permission the developers of the new idea have to really do something new – like maybe not sell coffee at all, and (c) we don't know if there are any significant resources committed to the project.  So it's too early to know if this is really White Space.  But at least it's not another flavor of coffee or repackaging of coffee or more of the same – which was killing Starbucks.  If the leadership really starts creating some White Space projects to develop new stores then even the beleagured Starbucks has the opportunity to grow itself out of this recession.

Recessions dramatically bring home market shifts.  Those clinging to old Success Formulas are exposed as very weak (like GM) and are targets for failure.  Those who reach out to provide solutions to new market demands can not only grow during the recession, but upstage older competitors.  They can change market competitiveness to favor themselves, and grow dramatically by overtaking the Locked-in competition.  Recessions end when businesses launch new products and services that meet the needs of a shifted market.  So if you're waiting on the recession to end – just keep on waiting.  When it ends you just might find you are so out of the market you aren't competitive any longer.  Instead, get with moving toward the new market needs today so you strengthen your business and become a leader in the near future.

Forced innovation – Consumer goods and retail,

"Retailers cut back on variety, once the spice of marketing" is the Wall Street Journal.com headline.  It seems one of the unintended consequences of this recession will be forced consumer goods innovation!

For years consumer goods companies, and the retailers which push their products, have played a consistent, largely boring, and not too profitable Defend & Extend game.  When I was young there was one jar of Kraft Miracle whip on the store shelf.  It was one quart.  This container was so ubiquitous that it coined the term "mayonnaise jar" – everybody knew what you meant with that term.  Now you can find multiple varieties of Miracle Whip (fat free, low fat, etc.), in multiple sizes.  This product proliferation passed for innovation for many people.  Unfortunately, it has not grown the sales of Miracle Whip faster than growth in the general population. 

Do you remember when you'd go to Pizza Hut and they offered "Hawaiian Pizza?"  Pizza Hut would concoct some pretty unusual toppings, mixed up in various arrangements, then give them catchy labels.  Unfortunately, what passed internally as an exciting new product introduction was recognized by customers as much ado about nothing, and those varieties quietly and quickly left the menu.  Like the Miracle Whip example, it expanded the number of choices, but it did not increase the demand for pizza, nor revenues, nor profits.

Expanding varieties is too often seen by marketers as innovation.  I remember when Oreos came out with 100 calorie packs, and the CEO said that was an innovation.  But did it drive additional Oreo sales?  Unfortunately for Nabisco, no.  It was plenty easy to count out the number of cookies you want and put in a baggie.  Or buy fewer cookies altogether in these new, smaller packages.

These sorts of tricks are the stock-in-trade of Defend & Extend managementClog up the distribution system with dozens (sometimes hundreds) of varieties of your product.  Try to take over lots of shelf space by paying "stocking fees" to the retailer to put all those varieties (package sizes, flavor options, etc.) on his shelf – in effect bribing him to stock the product.  But then when a truly new product comes along, something really innovative by a smaller, newer company, the D&E manager uses the stocking fees as a way to make it hard for the new product to even reach the market because the small company can't afford to pay millions of dollars to bump the big guy defending his retail turf.  The large number of offerings defends the product's position in retail, while simultaneously extending the product's life to keep sales from declining.  But, year after year the cost of creating, launching and placing these new varieties of largely the "same old thing" keeps driving down the net margin.  The D&E manager is trying to keep up revenues, but at the expense of profits. 

Simultaneously, this kind of behavior keeps the business from launching really new products.  The previous CEO at Kraft said in 2006 that the best investment his company could make was advertising Velveeta.  His point of view was that protecting Velveeta sales was worth more than launching new products – and at that time the last new product launched by Kraft was 6 years old!  Internally, the decision-support system was so geared toward defending the existing business that it made all marginal investments supporting existing brands look highly profitable – while killing the rate of return on new products by discounting potential sales and inflating costs! 

This D&E behavior isn't good for any business.  Consumer goods or otherwise.  And it's interesting to read that now retailers are starting to push back.  They are cutting the number of product variations to cut the inventory carrying costs.  As I mentioned, if you now have 6 different stock keeping units (SKUs) for Miracle Whip in various sizes, flavors and shapes but no additional sales you more than likely have doubled, tripled or even more the inventory – and simultaneously reduced "turns" – thus making the margin per foot of shelf space, and the inventory ROI, poorer.  Even with those "shelf fee" bribes the consumer goods manufacturer paid.

For consumers this is a great thing!  Because it frees up shelf space for new products.  It frees up buyers to look harder at truly new products, and new suppliers.  The retailer has the chance of revitalizing his stores by putting more excitement on the shelves, and giving the consumer something new.  This action is a Disruption for the individual retailer – pushing them to compete on products and services, not just having the same old products (in too many varieties) exactly the same as competitors.

This action, happening at WalMart, Walgreens, RiteAid, Kroger and Target according to the article, is an industry Disruption.  It impacts the manufacturers like Kraft and P&G by forcing them to bring more truly new products to the market if they want to maintain shelf facings and revenues.  It alters the selling proposition for all suppliers, making the "distribution fees" less of an issue and turning those retail buyers back into true merchandisers – rather than just people who review manufacturer supplied planograms before feeding numbers into the automated ordering system.  And it changes what the manufacturer's salespeople have to do.

The companies that will do well are those that now implement White Space to take advantage of this Disruption.  As you can imagine, it's a huge boon for the smaller, more entrepreneurial companies that may well have long been blocked from the big retailer's stores.  It allows them to get creative about pitching their products in an effort to help the retailer compete on product – not just price.  And for any existing supplier, they will have to use White Space to get more new products out faster.  And get their salesforce to change behavior toward selling new products rather than just defending the old products and facings.

Markets work in amazing ways.  Almost never do things happen as one would predict.  It's these unintended consequences of markets that makes them so powerful.  Not that they are "efficient" so much as they allow for Disruptions and big behavior changes.  And that gives the entrepreneurial folks, and the innovators, their opportunities to succeed.  For those in consumer goods, right now is a great time to talk to Target, Kohl's, Safeway, et.al. about how they can really change the competition by refocusing on your innovative new products again!

Use White Space to create Social Media Value – Pizza Hut, Sony, Dell, Sears

Where the people go, advertisers will follow.  Why pay for an ad at the end of a never traveled dead-end street?  The purpose of advertising is to reach people with your message.  And now "Forrester: Interactive Marketing to grow 11% to $25.6 Billion in 2009" reports MediaPost.com.  When print advertising is dropping (direct mail down 40%, newspaper down 35% and magazines down 28%), the on-line market is growing and expected to reach over $50billion by 2014. Search ads is the biggest, with over half the market, but social media is expected to grow the fastest at over 34%/year.

Such a market shift indicates that those who buy ads need to be very savvy about what works.  Like I said, you don't want to be the fool who jumps into billboards, only to get placed on the one at the end of a dead-end road.  Success means Disrupting your assumptions about advertising, and learning what work by entering White Space with tests and measurements.

In "Mobile Marketing Won't Work Here" Bret Berhoft explains why GenY simply won't tolerate intrusive ads – especially on their mobile devices.  Social media are different conduits, with different users and different behaviors.  Where older folks (and our parents) were content to be interrupted by ads – such as on TV – the avid users of new media aren't.  And they've been known to create counter-movements attacking advertisers that don't adhere to their on-line behavior requirements.

What won't work is trying to do what Sears has done. Instead of learning how people use social media, and how you can connect with them to meet their needs, "Sears to Launch Social Networking Sites" we learn.  Where everybody is using Facebook, MySpace, Twitter, Linked-in, etc., Sears decided to open two new sites called MySears.com and MyKmart.com.  They hope people will go to these sites, register, and tell stories about their experiences in both retail chains.  Then Sears intends to flow through good comments to Sears.com and KMart.com sites.

The horribly Locked-in Sears management keeps trying to Defend & Extend its outdated model.  As people have left Sears and KMart in droves for competitors, they aren't looking for a site to "connect" with other people who are Sears centric.  People use social networks to learn, grow, exchange ideas, keep up with trends.  They don't register for a site because their parents used to shop there. 

Sears has missed the basics of Disrupting its old Success Formula, so it keeps trying to apply it in ways that don't work. It keeps doing what it always did, only trying to do it in new places. These sites aren't White Space projects trying to participate in the social networks that are growing (like everything from illness questions to home how-tos).  Rather, they are still trying to take the position that Sears is at the center of the world, and people want to be part of Sears.

Exactly how advertisers will capture the attention of participants still isn't clear.  Some ideas have gone "viral" producing mega-returns for minimal investments.  Other ideas have flopped despite big spending.  The market is shifting, and variables keep changing (Marketers Search for Social Media Metric.)  But for those who Disrupt their old Lock-ins, those who attack their assumptions, they can use White Space to learn what does work

"Pizza Hut 'Twintern' to Guide Twitter Presence" is a great example of creating White Space to study social media advertising by participating.  The new position will interact with Twitter users, and be a leader in how to interact with Facebook and other sites – even the notorious YouTube! where user content can include the very bizarre.  By participating where the customers are, these leaders can develop insights to how you can consistently advertise effectively.  Already Sony and Dell have demonstrated they can achieve high recall (Word of Mouth goes Far Beyond Social Media) beyond Social Media with their on-line efforts.  These participants, who Disrupt their assumptions and bring in others to work in White Space will be the winners because they aren't trying to Defend & Extend the old Success Formula.  They are trying to create a new one to which they can migrate the old business.

Using Innovation to shift – Kindle and newspapers (Boston Globe, New York Times)

Today Yahoo.com picked up on Mr. Buffett's recent comments, with the home page lead saying "Buffett's Gloomy Advice."  The article quotes Buffett as saying newspapers are one business he wouldn't buy at any price. Even though he's a reader, and he owns a big chunk of the Washington Post Company (in addition to the Buffalo, NY daily), he now agrees there are plenty of other places to acquire news – and for advertisers to promote. 

I guess the topic is very timely given the Marketwatch.com headline "N.Y. Times hold off on threat to close Boston Globe".  Once again, in what might remind us of an airline negotiation, the owner felt it was up to concessions by the workers, via their union, if the newspaper was to remain in business.  After squeezing $20million out of the workers, the owners agreed not to proceed with a shutdown – today.  But they still have not addressed how a newspaper that is losing $85million/year intends to survive.  With ad revenue plunging over 30% in the first quarter, and readership down another 7% in newspapers nationally, union concessions won't save The Boston Globe.  It takes something that will generate growth.

And perhaps that innovation was also prominent in today's news.  "Amazon expected to lift wraps on large-screen Kindle" was another Marketwatch headline.  Figuring some people will only read a magazine or newspaper in a large format, the new Kindle will allow for easier full page browsing.  According to the article, the New York Times company has said it will be a partner in providing content for the new Kindle.

Let's hope the New York Times does become a full partner in this project.  People want news.  And the only way The Boston Globe and New York Times will survive is if they find an alternative go-to-market approach.  Printing newspapers, with its obvious costs in paper and distribution, is simply no longer viable.  Trying to defend & extend an old business model dedicated to that approach will only bankrupt the company, as it already has bankrupted Tribune Company and several other "media companies."  The market has shifted, and D&E practices like cost cutting will not make the organizations viable.

It's pretty obvious that the future is about on-line media distribution.  We've already crossed the threshold, and competitors (like Marketwatch.com and HuffingtonPost.com) that live in the on-line world are growing fast plus making profits.  What NYT now needs to do is Disrupt its Lock-ins to that old model, and plunge itself into White Space.  I'm not sure that an oversized Kindle is the answer; there are a lot of other products that can deliver news digitally.  But if that's what it takes to get a major journalistic organization to consider switching from analog, physical product to digital on-line distribution as its primary business I'm all for the advancement.  Those who compete in White Space are the ones who learn, adapt, and grow.  Being late can be a major disadvantage, because the laggard doesn't have the market knowledge about what works, and why.

This late in the market evolution, the major print media players are all at risk of survival.  While no one expects The Chicago Tribune or Los Angeles Times to disappear, the odds are much higher than expected.  These businesses are losing a tenuous hold on viability as debt costs eat up cash.   Declining readership and ad dollars makes failure an equally plausible outcome for The Washington Post, New York Times and Boston Globe.   Instead of Disrupting and using White Space, as News Corp  started doing a decade ago (News Corp owns The Wall Street Journal and Marketwatch.com, as well as MySpace.com for example), they have remained stuck in the past.  Now if they don't move rapidly to learn how to make digital, on-line profitable they will disappear to competitors already blazing the new market.

The vicious growth stall spiral – Motorola

My book talks about Growth Stalls.  Whenever a company sees two consecutive quarters of flat or declining sales or profits, or 2 consecutive quarters where year over year sales or profits were flat or declining, it is in a growth stall.  Unfortunately, only 7% of companies that hit a growth stall will ever again consistently grow at a mere 2%.  Yes, that's damning and almost unbelievable.  And very worrisome given how many companies are now entering growth stalls.

Take a look at Motorola.  They stumbled badly in mobile phones because they didn't keep pushing out new products into the market.  They tried to Defend & Extend their popular Razr product, and eventually profits disappeared as they cut price.  Then sales fell off a cliff as people shifted to newer products.  The stall was created by the company insufficiently pushing innovation into the market, and the market shifted to new solutions.

Now "Motorola to cut more jobs as non-cell business weakens" according to ChicagoBusiness.com by Crain's.  When the mobile business weakened, management took action to "shore up" the business.  It went hunting for a buyer (none found), and it started cutting resources. Including monster layoffs.  But it still had to keep investing or the business would collapse entirely.  This had a cascading, spiraling negative effect on the rest of Motorola.  With resources pushed into the failing cell phone business, there was less management attention and money spent on other businesses.  Those also stopped pushing new innovations to the market.  Now sales of network gear, set-top boxes, and 2-way radios are all down double digits.

So Motorola plans to cut another 7,500 jobsMore resource cuts, which will cause more cuts in innovation, fewer new products, less White Space.  The process of Defending & Extending the past becomes more entrenched, because there are fewer resources around.  What gets cut most is anything new.  The stuff that could generate growth.  Cuts lead to people hoping for an economic recovery that will somehow improve their competitive position.  But it won't.

Motorola is now pinning its future on successful smart phone sales.  But reality is that every quarter Motorola becomes a far more distant provider in mobile phones.  While the best performer had flat volume last quarter, Motorola saw unit sales drop 46%.  Motorola moves farther from the market, and into role of niche player.  And even though cell phones is supposed to be for sale as a business, as we can see the company is diverting resources from the best part of Motorola (non-cell phones) to mobile handsets because they won't quit trying to Defend & Extend that business.

It's now clear that Motorola is in a vicious circle of cutting resources, losing sales, losing market share, discontinuing innovation, delaying new products, cutting more resources, losing more sales, losing more profits, doing even less innovation, offering up even fewer new products, …… Almost no one ever recovers from this spiral.  By trying to Defend & Extend the old business, the actions – including layoffs – significantly harm the business.  With less and less innovation, and fewer resources, the company slips into decline and failure.

And that's why growth stalls are deadly.  They exacerbate Defend & Extend's weakness as a management approach.  The lack of innovation, remaining Locked-in, was what caused the stall.  Blaming a recession is just looking for a bogeyman so the business doesn't have to take responsibility for its own mistake.  But after a couple of quarters of bad performance, the next wave of actions – the "best practices" to "shore up a problem company" – kill it.  The layoffs and resource cuts – especially the delaying or killing of White Space projects and new products – cause customers to accelerate their move to competitors.  And the company simply fails.

Today employees in those companies in growth stalls have a lot to worry about – as do their investors.  If you hear leadership talking about job cuts and other D&E actions – while deflecting blame elsewhere besides the lack of meeting new market needs – then you're best off to find a new job and sell the stock.  These companies will only continue to get weaker, and competitors will displace them as market leaders.  An improving economy will be created by their growing competitors, not them, and their boat will not rise with the tide. 

The solution is obviously not to practice D&E management.  When you identify a growth stall is when all attention needs to be focused on rolling out new solutions to return to growth.  Instead of cutting costs while trying to save the past, the business needs to move as rapidly as possible to the solutions needed in the future.  Old businesses that caused the stall need to see dramatic resource constraints, while the new opportunities take front and center attention.

It wasn't "the economy" that got Motorola into desperate straits.  It was Apple's iPhone and Nokia's relentless new product introductions.  Without commensurate innovation, Motorola will never return to its former leadership position.  And without resources, that cannot happen.

By the way, thanks Carl Icahn.  You were the first to really push Motorola down this track of resource cutting.  You're efforts to push Motorola this direction worked, even if you didn't get to lead the cuts.  But the results are the same.  And if Motorola isn't careful, the whole company may disappear as both halves of what now remain continue declining.

Why GM won’t survive very long

"Chrysler Avoids Bankruptcy as GM steps toward it" is the Marketwatch.com headline.  According to the article, Chrysler has a deal to manage its debt while Ford has never been as close to the edge as its two brethren.  But GM is trying to get bondholders to take a 60% value reduction AND exchange the bond value for equity value – which of course has no assurance and could easily go to zero.  The bondholders are squawking, and it's unclear they will agree.  Which would plunge GM into bankruptcy Are the bondholders just greedy?  Or do they see the chance of getting some of their money back better via liquidation?

Ford has some of the most popular and fuel efficient vehicles in the world.  They just aren't sold in the USA.  But they've long had high share in Europe, where Ford has built smaller cars with both diesel and gasoline engines that have met market needs.  Now Ford is preparing to build and sell those cars in the USA, which would move them a lot closer to recent market shifts than the worn out Lincoln line and the renamed 500 (rebadged as Taurus under the guise of the name making all the difference.)  These European cars offer an opportunity for Ford to Disrupt the U.S. market and regain a positive footing.

Meanwhile, Chrysler has some of the most innovative cars on the market.  Its 300, Charger and Challenger cars use technology that allows V8 engines to shut off 4 when not needed – allowing them to achieve over 30 MPG in a "large" and "performance" format.  Further, for those seeking safety and control, the 300 and selected other models are available in all wheel drive, which has been proven to be the #1 safety enhancer possible.  And of great value in northern climates where foul weather (rain and especially snow or ice) makes driving treacherous.  All included in dramatic styling that appeals to American consumer tastes.

But GM?  "GM to focus on four keeper brands" is the MediaPost.com headline.  Most GM innovation is concentrated in Pontiac, Hummer, Saturn and Saab.  The first of these is to be closed down for sure, and the latter 3 either sold or closed.  As the CEO says "the company will focus on four brands it defines as core: Chevrolet, Buick, Cadillac and GMC." Anytime the CEO of a failing company says he plans to save the place by "focusing on the core" and thereby cutting back to some aged part of the company RUN, RUN, RUN.  The past is the past, and you NEVER regain it.  Making these brands exciting is about as likely as making Holiday Inn a high-end hotel chain.

Think about it.  Remember Izod with those alligators on the breast plate?  Would you consider buying those shirts in Macy's?  Or how about resurrecting Howard Johnson's as the place to stay and eat while traveling?  Or shopping at KMart?  Or taking instant photos on a Polaroid?  When the market moves on, it's moved on.  No business can recapture past profit levels by "focusing" on old brands and products that were once great.  The clock never runs backward. T he market has shifted, and companies have to shift with it – not try to pretend "focusing on the core" will create profits simply because they are dedicated and focused.

It's Ford's offshore innovation that may save the company.  It's Chrysler's engine, drive train and styling innovations that may save it.  But GM is getting rid of anything that looks like innovation – and anything that might look like a Disruption or White Space.  It has no hope of ever regaining market strength.  It's plan is faulty, and won't work.  Even if bondholders accept the swap of debt for equity, in short order GM sales will continue declining (as will profits), and there's no way bondholders can sell all that equity in order to recover their invested value in the bonds.