New Solutions Emerge – Apple, Amazon, Netflix, YouTube, Hulu

Most people misunderstand evolution.  They think that changes happen slowly.  Imagine an animal with a 12 inch tail.  Every generation or so it's imagined that the tail gets a little shorter, then a little shorter, then a little shorter until after some very long time it simply disappears.  But that's not at all how evolution works.

Instead, most of the animals have a long tail.  Some small number of animals are born each year with very short or no tails.  For the most part, this matters little.  If the tail is valuable – say for warding off parasites – those without tails may suffer and die off quickly.  And that's the way things are, largely unchanged, for decades.  But then, something happens in the environment.  Perhaps the emergence of a predator able to catch these animals by the tail and hold them in place to let the pack kill it.  Within one generation almost all of the tailed animals are killed by the predator, and only the no-tail animals survive.  Some of these have developed an immunity to the parasite.  So then this "evolved" animal becomes dominant.  No-tail animals replace the tailed animals.  That's how evolution really works.  It happens fast, with drastic change (and this time of change is referred to as a punctuated equilibrium.)

Once we know how evolution really works, we can start to better understand business competition.  A Success Formula works for a really long time, until something changes in the marketplace.  Suddenly, the old Success Formula has far poorer results.  And a replacement takes over.

Consider newspapers.  They played a very important role in society for at least 100 years (maybe 200 or 300 hundred years.)  But with the advent of the internet, their role is no longer viable.  Printing and delivering a daily paper is too expensive for the value it can provide.  So think of newspapers as the long-tail animal.  And digital news delivery is a short-tail animal.  The internet is the attack pack that kills the newspapers.  And within short order, the world is a different place – in a new equilibrium.  And everything about the surrounding environment is shifted.  Regardless of how much you enjoyed newspapers, they simply cannot compete and new competitors are a better fit in the new marketplace.

Now consider Netflix.  Netflix played a major influence in obsoleting traditional movie rental shops – like Blockbuster.  Netflix was a winner.  But markets – new attack packs – keep emerging.  And the latest shift are products like the Kindle and Apple Tablet (as well as other tablet PCs.)  These products make Hulu and YouTube a lot more viableSuddenly, Netflix is the long-tail animal, and the short-tail animals are doing relatively better. 

According to The Wall Street Journal, in "Apple Sees New Money in Old Media" Apple is close to a deal with several newspapers to deliver their content to readers via their internet device.  They also are negotiating rights to deliver movies and television (small format) entertainment.  Simultaneously, Amazon keeps marching forward as MediaPost.com reports in "Take That Apple: Kindle Introduces Apps."  We see that there are a LOT of potential different versions of the short-tail animal.  Tablets, phones, netbooks, etc.  Which will be the biggest winners?  Not clear.  But what is clear is that the old long-tail competitors (newspapers, print magazines, network television, traditional PCs) are not going to flourish as they once did.  The market has permanently shifted.  Those competitors are in the back end of their lifecycle.

Simultaneously, this market shift causes ripple effects through the environment.  The market shift affects ALL players – not just the one most visibly being attacked.  So, as SiliconBeat.com reports in "Looks Like Netflix is Dead, Again" this change suddenly imperils Netflix which has mostly counted on postal delivery rather than digital.  And it provides a boost to short-tail players like Hulu and YouTube which could see much larger revenue given their digital-based delivery models.

And this affects you.  What do you print, or say, that could be better handled on a mobile device?  Could you deliver user instructions via an iPhone or Kindle app?  If so, why aren't you doing it?  Are you still working on traditional web pages, with embedded text in graphics that can't be seen by a mobile phone, when most people are likely to find you first on their mobile device?  Are you busy working on your web site, while ignoring having a Linked-in or Facebook account?  Are you advertising on television, or in newspapers, and ignoring Facebook ads – or YouTube links?  Do you have a YouTube channel with short clips to instruct users on your product, or how to install an upgrade, or even why to buy?  Are you still competing with a long tail, while the pack is rapidly killing off the long-tail species?

Market shifts are happening fast today.  If you don't react, you just may find yourself deep into the pack with declining results.  Or you can shift with the market to keep your business competitive.

Skating to where the puck will be – Apple and advertising

I was intrigued to read about Apple proposing to rebuild a mass transit stop in Chicago in exchange for naming rights to the stop, as well as permission to advertise in the stop (Crain's Chicago Business – "Doors will open on the right at Apple stop.")  Most people would ask "why?"  And it's because Apple is moving toward a very different advertising future.

Most people think of advertising as the ads in newspapers and magazines, as well as on the radio, or television, or possibly billboards.  Only we know that newspapers and magazines are failing because fewer people read them every month.  Advertising in print media has limited value if there aren't any readers.

Likewise, people under 30 are watching a LOT less TV than the older generation.  Whereas I grew up with my eyes on the "boob tube," increasingly I watch a lot less TV as I spend more time on the web.  But my web use is nothing compared to people 17 to 34, who have almost abandoned television. They go to the web for entertainment.  And they increasingly only watch TV shows and movies when they can download them – or possibly watch via DVD.

And Apple is at the forefront of killing the radio businessWith iPods and digital music now cheap and plentiful, why listen to somebody else's programming?  When you can program your own music, radio becomes less interesting.  And if you want news there's the iPhone, Blackberry or similar mobile device to access the web – so why listen to talk radio? 

Advertising as it was is gone.  Coke, Pepsi, Procter & Gamble, Kraft, etc. built huge companies via media advertising.  But media usage is declining sharply.  So how do you get the message out to people who increasingly get their entertainment without using most of the traditional media?

And that's where Apple's move makes sense.  By rebuilding a train station, they help promote their brand.  It reminds me of when Hooters offered to fill the potholes in Chicago (a big problem) if they could put their company logo over them.  This week I noticed that in the Newark, NJ airport the jetways had big billboards on the outside.  And the TSA bins (for shoes, coats, laptops, etc.) had ads printed on the bottom.  It's getting harder and harder to reach customers when they don't need traditional media.  

So if you have historically been a big user of traditional media advertising, you'd better be rethinking that strategy.  What worked in the past isn't going to work in 2015. Staying Locked-in to old ad budgets, and approaches, is going to keep producing declining returns.  Traditional advertising won't even maintain current positions – much less work for new product launches.  As ad costs go up, they are less effective.  To reach customers requires shifting with the market.

If your new business plas is to use advertising as a way to grow your business, think again.  While advertising isn't gone – it is a lot less effective than it was when traditional media was widely the source of information and entertainment.  If you want to get people to recognize your brand, you have to start being a lot more clever.  You have to find new ways to get in front of customers.  You have to use your scenarios of the future to help you find the best way to promote your product.  Because the old channels, and the ad firms that used to supply them, increasingly are an ineffective answer.

Newspaper weaknesses – Quotes for NYT, Washington Post, LATimes, Chicago Tribune

"If you don't read the newspaper you are uninformed.  If you do read the newspaper you are misinformed."  — Mark Twain

"All I know is what I read in the newspaper.  That makes me the most ignorant man alive."   —- Will Rogers

What both these great writers understood was that when you get most of your news from one source, you get only what that source chooses to tell you, and only a single interpretation of the news.  Since newspapers began there has been controversy about bias in news reporting.  Many famous newspapers were considered "conservative" or "liberal" based upon the political opinions of the owners.  The reality is that when a newspaper reporter tells you a story, what you read – down to the word choices - is affected by the opinions and feelings of the author, as well as those of the editor and perhaps even the publisher. 

The great breakthrough of the internet is you aren't restricted to a single (or possibly) two sources.  You can find articles about anything from a political speech to an automobile accident published by 5, 10 maybe hundreds or thousands of sources.  And for many news items the internet provides you not only multiple opportunities to read how the "facts" are told, but you can find multiple articles that interpret those facts.  This plethora of coverage means that internet readers have the opportunity to be as selective, or as broad, as they choose.  And it means that the ability of publishers to "control the direction" of a story is dramatically diminished.  Readers, by looking across multiple sources, can determine as a group which "facts" they find accurate, and which "interpretation" they find most genuine.  Because of the internet, news coverage is "democratized" in a way that has never before been possible.

Newspapers provided a method of informing the public for a very, very long time.  But they have an internal weakness they cannot overcome – the printing means that only one version of a story is told and it can only be economically told once per day.  The distribution method makes newspapers an "event" that occurs at "deadline", and the cost is high enough that there's only enough advertising to support the printing and distribution of one newspapers in most markets.  When you get down to the printing – the "paper" in "newspaper" – it has limits that create a weakness.

The internet is disruptive because it overcomes the limitations of printing.  It is available 24×7 not just to read, but to be updated and current with the latest information.  A person anywhere can read input from multiple sources.  The internet makes up-to-the-minute news coverage of everything available to people in rural, remote locations as quickly as it does those "on the scene", thus opening an interest in world or very local events to everyone on the planet, regardless of location.  And this means this "no cost distribution" (not no cost of fact acquistion, or interpretation, or writing – just distribution) allows the internet to do what economist Joseph Schumpeter called "creatively destroy" the old value in newspapers. 

Those who bemoan the loss of newspapers need to spend more time on the internet.  There are so many sources for so much news that we are today the best informed society in the history of mankind.  The financial problems at newspaper publishing have not diminished the quantity or quality of news coverage.  Those are higher than ever.  And the businesses that jump into this market, by developing networks to access the most/best news and interpretation at the lowest cost – while delivering it in a format that is easy for readers to find and absorb – will be successful.  And it will be harder than ever for those trying to create the news (such as politicians and political pundits) to decry "bias" in a world where all opinions are available to everyone.

When you gotta go -:) P&G toilet database

If you can read this blog and not grin (or maybe even laugh) you're more grisly than me.

MediaPost.com posted "P&G Backs Public Toilet Database Site, App."  Proctor & Gamble, supporting Charmin branding, has agreed to financially support the web site www.SitorSquat.com, which was originally developed by a New York homemaker.  According to the Charmin brand manager this is considered part of the overall marketing effort which includes providing toilets at public events.  His goal is that by helping people find clean places to go, it will help them remember to buy Charmin when they are at the grocery.

You have to admit, it's a clever and far from traditional idea.  And certainly most of us have been in situations whether for ourselves or for someone with us (including children) we'd like to know the location of a toilet – especially a clean one.  That the database can be downloaded, or accessed via the web or iPhone or Blackberry makes it a usable tool.  Perhaps as valuable as an on-line restaurant guide. In times of "crisis" it could be the most valuable app on your iPhone.

But, despite the cleverness, P&G is operating in D&E mode rather than really growing toilet paper sales.  The app does not discern whether the facility's paper is nice, soft Charmin, or more industrial single ply product.  Nor does it even promote Charmin in rating the toilets.  The stars seem to be more closely tied to mop and rag use by janitors, and accessibility, than anything else.  It's unclear that this will increase demand for Charmin, much less toilet paper, and probably does little more than reinforce the brand name, by merely putting it on the site.

If P&G really wanted to grow the market for toilet paper, it would be more aggressive.  For us world travelers, there are many places where toilet paper isn't as common as the USA – such as India.  We all know of various health risks in India (mostly due to water issues), and P&G would be well served to promote hygiene in the developing world, including the use of disposable personal cleaning products like toilet paper.  Further, P&G could develop products that use less wood pulp thus having less environmental impact, in effect a "green" toilet paper, that would incent additional use by the ecology-oriented.  Or P&G could develop product from recycled or other waste material that has an even lower carbon footprint than paper (corn stalks? corn husks? banana leaves? straw?), again promoting use in the developing world (that often lacks enough wood) as well as environmental advocates.

While the database is interesting, and no doubt will get used, its business value will most likely be nill.  A funny news column, but of no value to P&G shareholders. It doesn't help P&G address future needs of people regarding toilet paper (ecology, etc.), nor does it address the use of competitive products (which is non-use, or natural fibers [leaves] in the developing world).  P&G has taken a clever new generation product like an iPhone app, and turned it into a very traditional, industrial use which is basic brand awareness reinforcement.  Really not White Space, because no goals are given the project nor any positive results expected from it. 

But, you have to admit, it's definitely "outside the box" thinking – especially for a company as stodgy as P&G.  There is no doubt, this is an innovative (if sustaining) innovation in brand marketing – including the building of a web/iPhone app to promote a product.  You'd just like to see P&G go a bit further in its efforts to find growth for shareholders.  Have a happy weekend!

To create value, build the right business – AOL

It was less than a decade ago when Time Warner bought AOLTime Warner was going gangbusters.  It had grown out of the old magazine business to be a leader in television cable programming – even buying the business run by the #1 cable entrepreneur Ted Turner.  Simultaneously, AOL had become the #1 company providing internet access.  At the time, people didn't just buy access to the highway (the web) in form of a communication line, in the world of dial-up and early broadband they bought into a web provider.  AOL offered everything from the dial-in number to the home page and a series of tools to make web access easier for neophyte users.  In all the hoopla about how Time Warner had content, and AOL had "eyeballs" (meaning people going on-line at computer screens), the merger of AOL and Time Warner was born.  A very, very high priced Time Warner used stock to by a remarkably high priced AOL. 

But this marriage soon became a nightmare, with fingers pointing at everyone – from the CEOs to the Boards of Directors and many people in management.  AOL and Time Warner could not maintain the growth rate.  Worse, people showed the first signs of moving from TV viewership to internet use, and AOL was losing share of market quickly as broadband became available.  Infighting and bickering took over.  Both companies, virtually all of management, was trying to build an industrial company out of what they had.  Management kept talking about how it wanted to "control" customer access, "control" internet behavior, while focus remained on "scale" as they wanted to become the "largest" internet provider and the "largest" content provider.  The leadership had built both companies, and raised money, using an industrial model that expected the companies to somehow use size and scale and market share to reduce industry rivalry, control vendor costs, and allow for much higher pricing to justify the equity multiple. 

Oops.  By 2000 we already were well into the information economyScale had almost no meaning – even for telecom companies that crashed as people realized even big infrastructure suppliers couldn't avoid intense competition and low prices.  And as the web expanded access 100 fold, early expectations that there would be insufficient content thus making the Time Warner content priceless (news, broadcast programs, cable programs, etc.) quickly gave way to the knowledge that content could expand 1,000 fold (or 10,000 fold) when everyone had access to viewers/readers.  The industrial model upon which AOL/Time Warner had been built simply would not work.  And as the stock went into freefall, executives started rotating around the top offices.

Now, a new CEO has been hired.  He's from Google according to Marketwatch.com in its article "With new chief in place, will AOL stand on its own?"  And as the headline implies, many industry analysts are banking on a spin-out of AOL.  But you have to ask, "why bother to spin out AOL now?"  The notion of combining the capabilities of both has a lot of appeal – if you understand how to build an information based Success Formula.

AOL is one of the 4 top companies at reaching people on the web.  AOL gets about 60% of the monthly users as Google.  That's a pretty high number.  The obvious issues should be: Are the current web sites the right ones to appeal to customers?  Do they have competitive differentiation?  Looking forward, what web sites would excite viewers and attract them?  What sites would change competition?  At this stage, it's really hard to imagine that we're anywhere close to identifying the maximum value web sites.  With good scenario planning and competitior analysis, AOL has the resources, access and content to reposition itself as a leader for users.  As Yahoo! fortunes keep declining, AOL can build content-based reasons to grow.  Additionally, AOL can identify opportunities which are not already fortresses for Google, and work to build out those opportunities before Google gets there.  It's an unlimited world, and AOL/Time Warner has the right resources to be a major competitor for customers and revenues.

We need to watch closely what the new CEO (Tim Armstrong) does in his first few weeks.  The analysts would like for him to talk about a spin-off.  That reinforces their outdated views of industrial business models and would make them feel better about themselves and their long-term calls for changing the company.  But the smarter action would be for Mr. Armstrong to Disrupt the Lock-ins at AOL/Time Warner that have kept the company doing many of the wrong things for 8 years.  The leaders at AOL/Time Warner have been ineffective, and the existing decision-making processes are inhibiting value creation.  He must break the behavioral and structural Lock-ins that have allowed AOL/Time Warner to be a perennially bad performer.

Next he should use his experience at Google to make AOL/Time Warner start acting like Google.  He needs to take advantage of his customer reach to find out what those customers want, and then open White Space projects to deliver it to them.  He needs to quit focusing on the "internal assets" and refocus on the marketplace.  AOL isn't going to win or lose by acting like AOL.  He needs to move AOL into position to recognize the next YouTube or Twitter and get out there!  Just like News Corp. was able to buy MySpace, AOL has the resources to make a difference in the market.  A spin-off would leave 2 companies with outdated Success Formulas that could easily become obsolete.  But by implementing White Space focused on the market AOL could create an entirely new Success Formula based on information content and information value that would have a high rate of return for the beleagured investors.

AOL CAN have a great future.  It is one of the leading companies at reaching people on the web and via TV.  What AOL needs to do now is figure out how you make money off the value of all the information that customer contact gives youGoogle has captured every single search ever done on its engine, and never stops milking those searches to figure out how to grow and make moneyAOL needs to do the same thing - figuring out how to build the right information-based model that makes serving its customers profitable.