Adam’s onsite workshops take his thought provoking keynotes into action. Through his four step exercises, your organization will learn how to understand and leverage trends, scenario plan, and overcome locked-in outdated strategies to beat the competition using White Space teams.
Adam and his team offer three different workshops based on the type of event you’re looking to host that apply to any industry:
Single Company Workshops
Adam can focus his workshops entirely on your organization and your industry where you’ll learn to:
Understand market shifts in your marketplace
Identify Status Quo Risk in your organization
Recognize and leverage market trends
Identify game changers in your industry
Scenario plan using competitors and trends
Create a game changing plan
Multi -company Workshops
Whether you’re hosting an association or industry convention, Adam can adapt his strategy workshops to affiliate diverse businesses simultaneously. His multi-organization workshops focus on the external market shifts rather than specific attributes from each individual organization allowing a cross-pollination of ideas from different industries to enhance your company’s perspective. These workshops help multiple companies simultaneously understand how to:
Reframe the changing marketplace
Identify the early game changers and trends in their market
Understand the long-term impact of important trends
Develop a long-term vision of their industry and unique response to game changers
Board Level Status Quo Risk Management
Board of Directors are vital to guiding a company through a turbulent marketplace. Adam offers workshops for Boards and C-level management teams to understand their Status Quo Risk and develop a response.
Identify and assess your Status Quo Risk
Pressure test your plans for vulnerability to Status Quo Risk
Adapt the planning process to prepare for Status Quo Risk
Address the risk by learning and experimenting
For more information on how to request a workshop with Adam, contact him at [email protected].
As the CEO of Soparfilm Energy and Spark Partners and former Chairman of Apex Interactive along with several other board positions, Adam has a clear understanding of the demands CEOs, Chairmen and Boards face in a rapidly changing world.
Demands are greater than ever as regulations and compliance requirements soar. Whether an organization is for-profit or non-profit, they are all facing market shifts. Adam’s experience and expertise will show your Board how to benefit from long-term relationship planning, adjusting and evolving with changing competition and user needs. Adam is available to begin building long-term advisory relationships with Boards of Directors as well as Board membership.
For more information on how Adam could benefit your Board, contact him at [email protected].
Create Marketplace Disruption: How to stay ahead of the competition
By Adam Hartung, July 2008, FT Press
Some companies can’t change in response to market disruptions. Those companies die. Other companies do respond… eventually. They survive, but they see their profits squeezed, their growth flattened. Then there are the long-term winners; companies that create their own disruptions and thrive on change. In Create Marketplace Disruption, Adam Hartung shows how to become one of those rare companies, creating lasting growth and profits.
This book reveals why so many companies behave in ways that are utterly incompatible with long-term success… and why even “good to great” companies are struggling for air. You’ll discover how to reposition your organization away from the Flats and Swamps of traditional Defend and Extend Management and back into the Rapids of accelerated growth. Hartung demonstrates how to attack competitors’ Lock-ins, make their Success Formulas obsolete, and create the White Space needed to invent your own new formulas for success.
What you will learn
Create Marketplace Disruption shows how disrupting yourself is critical to reaping the benefits of market changes, and part of a process that can be reproduced over and over again. By reading this book, you will discover:
How we got into the mess and how to get out of it: The myth of perpetuity and the dark side of success.
That reinventing success means no more Defend and Extend: How to create your new Success Formulas and stay competitively advantaged.
Why “thinking outside the box” doesn’t work: First, get outside the box. Then, think!
How to maintain “The Phoenix Principle” for long-term success: Practicing Disruption until it comes naturally.
As professional business consultant with almost 30 years experience, Adam Hartung is all too familiar with a common malady among today’s businesses. Regardless of how much the leaders and organizations are struggling to grow revenues and profits they cannot seem to break out of below-expectation performance. Even when hiring top advisors, consultants and employees, results do not respond as expected. They seem stuck, and unable to make changes which will lead to superb performance.
Why? This question which sparked a more than 12 year analysis to determine the root of—and the solution to—the problem. Geoffrey Moore encouraged Adam to put his findings into a book, which he now endorses on the cover. The principles now covered in Create Marketplace Disruption have been affirmed as “fresh and much needed” by Tom Peters, and “a revolutionary message” by Malcolm Gladwell. Bill Gates’ co-author, Collins Hemingway, considers Create Marketplace Disruption a must read, as he details in the Foreword.
What Thought Leaders are saying about Create Marketplace Disruption
“Companies that cannot change die. Companies that respond eventually survive but see their profits squeezed, their growth flattened. Long-term winners create their own disruptions and thrive on change. Hartung shows how to become one of the winning companies: how to attack competitors’ lock-ins, make their success formulas obsolete, and create the space needed to invent formulas for success.”
Harvard Business School Bulletin, March, 2009
“How do you participate in market disruptions which threaten your current leadership status? In this book Adam Hartung shows the kind of thinking needed to deal with the creative destruction that underlies global capitalism today.”
Geoffrey Moore, author Dealing with Darwin” and “Crossing the Chasm”, Managing Director TCG-Advisors venture capital, September, 2008
“Create Marketplace Disruptions is as thought-provoking as it is entertaining. Adam Hartung offers business managers and leaders new insights to long-term success that apply across markets and industries.”
Steve Burke, President Comcast, August, 2008
“This is a disruptive book. In times of ever accelerating, deep change survival through “ever better management” is an illusion. This is the book for the entrepreneur in us. Unite the entrepreneurial soul with corporate resourcefulness. Adam’s framework should be tried.”
Jost Stollman, Shadow Minister Economy and Technology Federal Republic of Germany, July, 2008
“The Fortune 1000 is a very fluid list. They become successful doing something right, but then keep doing that (because it’s what they know) even when marketplace conditions change. Companies need to reinvent themselves, become flexible, and do something completely different.”
Nick Morgan, CEO Public Words, February, 2009
“In what is possibly one of most stimulating books ever written on business management, Adam Hartung explores various ways for a corporation to achieve adaptive success: such as stop the ‘Defend & Extend’ old habits, generate controlled disruptions of the corporate personality, and create autonomous ‘White Space’ to continuously create revised success formulas.”
Jean-Louis Vullierme, global venture capitalist, January, 2009
“Talking innovation is easier than practicing innovation. Adam offers an excellent approach for corporations to identify how to innovate to gain competitive advantage. A must read.”
Praveen Gupta, President, Accelper Consulting, author Business Innovation in the 21st Century, The Six Sigma Performance Handbook and Six Sigma Business Scorecard, September, 2008
“Adam Hartung gives a workable guide to overcome business inertia. Create disruption in your own business to keep ahead of the competition. Hartung looks at the reasons why businesses have difficulty changing, and provides help in overcoming those issues. Create Marketplace Disruption is an easy to read, helpful book and recommended.”
Sacramento Book Review, November, 2008
“Adam Hartung has forever changed the paradigm of what constitutes the leadership of change and innovation. He provides answers to why so many good organizations fail. He shows how leaders trained to focus on core competencies and customers may be sowing the seeds for their organization’s destruction in a time of accelerating change.”
Paul Davis, President Scanlon Leadership Network, October, 2008
“Adam Hartung offers courageous leaders a new language system and framework for generating long term profitable growth. Rich with compelling metaphors, stories, and illustrations, Create Marketplace Disruptions explains why even aggressive efforts to reinvent fail. Hartung provides leaders with practical tools for keeping companies ahead of declining results and obsolescence. Every leader needs to understand Hartung’s framework and heed his advice.”
Judi Rosen, Managing Director, CSC Index and President, The Concours Group, August, 2008
“Create Marketplace Disruption provides a model for competing more effectively in our constantly changing markets. Leapfrogging tired concepts which have largely focused on doing more of what you’ve always done, Adam Hartung focuses us on doing what it takes to do better. This is the book that all executives who want to leave a positive legacy must read!”
Ron Kirschner, Chairman Heartland Angels venture capital, December, 2008
“Adam Hartung blends stunning lessons learned from the fallen giants of business with set-you-back-in-your-seat insights that make this a must read for all business leaders of large and small companies alike. Hartung provides an intelligent blueprint for achieving what every business craves — competitive advantage and renewable growth. Smart, sophisticated treatment of a topic that no business executive worth his /her stock options can ignore — how to grow and differentiate your business.”
John Popoli, President Lake Forest Graduate School of Management, January, 2009
“Create Marketplace Disruption is an engaging, enlightening, frightening, and occasionally upsetting book. Its contents will repay careful thought and periodic revisiting. It’s a book to keep in mind, and close at hand, whenever an organization faces the need to develop an effective plan for the future.”
Dr. Michael Vitale, Asia-Pacific Centre for Science and Wealth Creation, October, 2008
“The insights provided by Adam Hartung makes this book a must-read for all entrepreneurs. This is a blueprint for generating more wealth and getting to investor returns faster.”
William A Johnson, Founder and CEO CAER Group, March, 2009
“Creating Marketplace Disruptions is an outstanding approach for creating and maintaining growth and profitability in an increasingly dynamic and uncertain global economy. More importantly, the book moves beyond concepts with a well crafted set of tools and techniques for implementing change that are relevant regardless of industry or company size”
“Adam Hartung presents a fresh perspective and compelling case that demands business leaders pursue new markets – thirst to disrupt the status quo. Every business should apply Mr. Hartung’s principles – only hiring those individuals prepared to question the corporate culture, and vigorously willing to pursue White Space.”
Ken Daubenspeck, Chairman and CEO KDA global management recruiters, October, 2008
Connect With Adam
Free eBook
The Fall of GM: What went wrong and how to avoid its mistakes
Of all the companies that typified America’s rise as an industrial superpower, none was more successful than General Motors. What happened? Why has it fallen so far?
As professional business consultant with almost 30 years experience, Adam Hartung is all too familiar with a common malady among today’s businesses. Regardless of how much the leaders and organizations are struggling to grow revenues and profits they cannot seem to break out of below-expectation performance. Even when hiring top advisors, consultants and employees, results do not respond as expected. They seem stuck, and unable to make changes which will lead to superb performance.
Why? This question which sparked a more than 12 year analysis to determine the root of—and the solution to—the problem. Geoffrey Moore encouraged Adam to put his findings into a book, which he now endorses on the cover. The principles now covered in Create Marketplace Disruption have been affirmed as “fresh and much needed” by Tom Peters, and “a revolutionary message” by Malcolm Gladwell. Bill Gates’ co-author, Collins Hemingway, considers Create Marketplace Disruption a must read, as he details in the Foreword.
Business leadership has not yet made the transition from management in the industrial economy to management in the information economy. While much has been written about an information economy it has yet to fundamentally affect how leaders manage their organizations. True, computer technology has unleashed new business models and methods of competition. Yet most leaders are still using management techniques which were taught in the 1970s and developed for the industrial economy.
To a large degree, the current disconnect is to be expected. The Russian economist Kondratiev demonstrated that economies move on a particularly long wave of approximately 75 years. He postulated that this was due to major changes in technology which took a very long time to reach adoption, massive use, decline and eventual replacement by another important new technology. Initially, the technology is used merely to improve existing processes and speed existing competitive models as we have seen with computer technology. Eventually, the full impact of the new technology creates new methods of competition which obviates the old, ushering in new rates of productivity and new methods of growth. We are at this fulcrum today.
For decades companies have prospered through “Defend and Extend” (D&E) Management—establishing a Success Formula, then improving and protecting it against competitors. In the Industrial Economy this worked well because size, economies of scale, and entry barriers were important. But today, due primarily to the emergence of information transparency, Success Formulas are being duplicated practically overnight—robbing companies of their competitive advantage. Practicing D&E Management in this environment is a prescription for failure, and yet that is what almost every company, large and small, is doing. And how most leaders are trying to get ahead.
In the three year period ending in 2003, bankruptcies of public companies increased 855% over the three year period ending just five years prior, and for companies with assets over a billion dollars the increase was an astounding 1,750%. To reverse this trend, companies must turn conventional wisdom on its head. Instead of looking to their Success Formulas as the solution to their problems, companies must learn to see their Success Formulas as the source of their problems. Companies must embrace the Phoenix Principle and become both willing and able to reinvent their Success Formulas… over and over again.
In recent years, Adam Hartung met with hundreds of senior executives. Almost every business leader sang the same sad refrain: every quarter of every year is a brutal struggle to make their numbers. Most admit that they don’t really know what to do to make things any better—nothing they have tried has made a sustainable difference. Historical tactics, including mergers and acquisitions, extensive cost-cutting, streamlining processes, outsourcing, and various quality programs have made little or no impact on competitiveness.
Well-meaning but increasingly outdated advice from business gurus such as Jim Collins and Larry Bossidy to focus on execution and optimize the core business are only making matters worse. Create Marketplace Disruption uses The Phoenix Principle to rebut the “optimize and execute” message while providing simple but powerful models that explain why so many companies are struggling to such an extent. The author illustrates with many convincing examples and case studies how the inevitable consequence of D&E Management has been lock-in to outdated Success Formulas leading to worsening performance. This has resulted in a vicious cycle of cost-cutting and profit erosion, eventually leading to failure.
D&E Management causes managers to behave as if their organizations are exempt from market and competitive shifts which can make their Success Formula obsolete. Many managers cling to the myth of business perpetuity as a rationalization for their mature companies to use continuous improvement as a way to create, then maintain, above average returns—even when the evidence overwhelmingly indicates otherwise. The hard truth is that the techniques Michael Porter published for competing in the 1980s no longer generate sustainable competitive advantage. Entry barriers are now exit barriers, supplier and customer leverage are short-lived, and focus on product innovation and cost reduction is far less likely to create success than implementing alternative business models.
Business leaders must embrace a new model for managing based on The Phoenix Principle. This entails rethinking the traditional approach to organizational lifecycle management in several ways, including making profits in the growth stage, planning on very short periods of competitive advantage, and exiting businesses much quicker than before. The Phoenix Principle emphasizes leaders’ responsibility for disrupting existing Success Formulas in order to experiment with new and innovative profit opportunities. While agreeing with author Clayton Christensen on many points, the author confronts Clayton’s claim that established companies cannot compete against, nor implement, disruptive technologies. Instead, the author demonstrates a process whereby any organization can most definitely enhance innovation, growth and change, including installing a culture of continuous renewal through new processes and changes in the employee mix.
Create Marketplace Disruption provides readers with hope that even the most locked-in organizations can renew themselves. Through a four-phase approach backed up with solid examples, business managers will learn how to reinvent locked-in Success Formulas at the individual, work team, business function, operating unit and company levels. This book provides the vernacular and practical “how to” information to undertake the “Re-Imagining” recommended by Tom Peters. Additionally, the author introduces readers to breakthrough thinking, which is the ability to challenge and change assumptions at the individual level. Readers are given powerful tools for transforming Locked-in behaviors, and developing new solutions for today’s dynamic business competition in the Information Economy.
This book will help beleaguered business managers understand why their organizations are struggling, why their actions not only aren’t helping but are contributing to the problem, and how leaders and individuals can Disrupt and reinvent their Locked-in Success Formulas to generate significant breakthroughs in performance.
Connect With Adam
Free eBook
The Fall of GM: What went wrong and how to avoid its mistakes
Of all the companies that typified America’s rise as an industrial superpower, none was more successful than General Motors. What happened? Why has it fallen so far?
Lock-ins create obstacles to long-term success. They block innovation by diverting resources into historical projects rather than new projects. Understanding the 3 kinds of Lock-in helps managers improve success and achieve higher returns.
The Phoenix Principle in Action: Download Adam Hartung’s Online Training Program
This product features Adam Hartung’s process of teaching individuals and organizations how to re-invent themselves. Adam will be your tour guide throughout this program taking you on a journey of looking at where your organization was when it first became successful and where it is now. You’ll discover how to position your department, team or entire organization on a new path based upon where the market is today.
The program includes:
A series of video clips of Adam introducing each of the five sections
Case studies on well known organizations
Interactive exercises
Worksheets that provide frame work for creating your own new path for revenue
Copy of e-book “The Fall of GM”
Links that take you to real-time blog posts relevant to section in the course
“Buy Low, Sell High” was an industrial era investor expression. Before we shifted into an information economy, investors were admonished to invest along with economic cycles, buying during recessions, selling during booms.
In today’s information economy it’s not nearly so simple. While growth occurs, companies falter and disappear (Sun Microsystems and Silicon Graphics, for example.) Meanwhile, during bad economic periods there are flourishing growth companies.
Company performance today has much more to do with whether the company’s products and services are aligned with trends, and market shifts created by trends, than the overall economy. When revenues first show signs fo faltering, often the company fails completely, unable to react to market shifts. Competitors quickly steal customers, revenue and precious cash flow. Investors frequently have little warning, or time, before company value slides into the oblivion, leaving them with negative returns.
So now it’s more important to look at trends in where product and service markets are headed than overall economic conditions. The economy won’t save a company that’s against the trend – or hurt a company that’s delivering the market trend.
Yahoo caught the early trend toward internet usage. In the early years people didn’t quite know what to do on the internet, so content providers, aggregators, and ability to search were valuable. People like Yahoo because it gave them what they wanted, and the company flourished as it became the home page for over 80% of internet users. Advertisers loved the user base, so they bought ads.
Then the market shifted. Users gained more experience, and didn’t need the aggregation function Yahoo provided. Increasingly they wanted to find answers themselves, making the quality of search more important than content. A white page with a simple box (Google) that did great searching across the entire web overtook Yahoo’s content. And, as time progressed people started using the internet as a primary location for socially connecting with friends and colleagues, making the content aggregation even less valuable. Time spent on Yahoo as a percent of time on-line began dropping:
So, nobody should be surprised that revenue would fall – correct? It’s not that the folks at Yahoo are wasteful, or not working hard. They simply are becoming out of step with the market trend. The result one would expect is worsening results in the old, “core” business – and that’s exactly what is happening:
Meanwhile, where the eyeballs go is where the display ad revenues go as well. And with the trends, that means we would expect display ad revenu growth to move away from Yahoo – as it has done:
So yesterday when Yahoo announced sales and earnings, it was a disappointment. What increase Yahoo had in fast growing display ads (5%) was insufficient to cover the decline in search ads (down 15%). Clearly, Yahoo missed the market shift. But, the CEO did not admit that the business model was ineffective (as results indicate.) Rather, she said the company needed more salespeople!
This proclivity to look inward, as if working harder, faster and better would “fix” Yahoo, defies the reality that the company is no longer competitive given where the market is headed. Ms. Bartz can’t succeed by trying to defend and extend the traditional Yahoo business model. Yahoo doesn’t need more salespeople, it needs an entirely different business!
Alternatively, Apple exemplifies the other side of this coin. I have been an unabashed bull on Apple for months. Why? Because it does create solutions tightly linked to market trends. People, as consumers or in business, demand more mobility. And Apple’s products deliver that mobility more seamlessly and effectively than any other solution provider.
Apple could well have kept itself focused on Mac sales. Had it done so, it would likely be out of business today. Instead, Apple focused the bulk of its development on delivering products that fulfilled trends. The result has been expansion into new markets, which have delivered massive revenue gains.
Last quarter Apple sold more iPhones and even more iPad tablets (9.25million units, $6.1B) than it sold Macs (~4 million units, $5.1B.) The old business has been replaced (cannibalized) by new, growing businesses that support the market trend. iPads are now 11% of the PC business overall, and growing fast as they obsolete PCs. Combined, iPads and Macs sold 13.25 million “computing devices” which would make it second in the world, behind only HP (15.3million PCs.) Bigger than Dell, for example, that has stuck to its “core” PC business.
Because Apple is all about delivering on trends, there’s really no reason to think revenues, and profits, won’t continue growing. The shift to mobility has just taken hold, and there are legions of people still without an apps-powerful smartphone (lots of Blackberry customers out there to shift.) The shift to tablets has just started. As these trends continue, Apple is continuing to develop new solutions that keep it ahead of competitors.
Where Yahoo’s CEO wants to add more salespeople, in hopes she can push outdated products, Mr. Jobs said in the earnings call yesterday “Right now we’re very focused and excited about bringing iOS5 and iCloud to our users this fall.” Yahoo is trying to do more of what it always did, as the market moves away. While Apple keeps its collective management eyes on the future – and where the market is headed – to constantly bring new solutions that deliver on the trends.
Sell Yahoo, if you haven’t already. And buy Apple. It’s all about investing with the trends.
Note: update on “Is Cisco a Value Stock? Skip It.” In the month since publishing that blog (6/23/11) Cisco has demonstrated that it is running headlong from the rapids of growth into the swamp of stagnation. Not only has it been killing off new products, but as it announced weak results the CEO has taken to a massive cutback. 11,500 employees are being laid off, or sent off to work for other companies as facilities are being sold to a Chinese company.
Worse, the CEO is now stooping to financial machinations in order to make the future look better. According to HuffingtonPost.comCisco is taking a massive $1.3B charge. This allows Cisco to write off various costs that are old, current and even future to the current P&L. This will inflate future earnings, regardless of actual performance, while deflating current results. The net impact is P&L manipulation designed to make the company – quarter over quarter or year over year – look better than it is actually performing. Transparency is being intentionally muddled, to hide the company’s inability to provide solutions delivering on market trends.
Cisco shows all the signs of a company in a growth stall. Unable to shift with market trends, it is now shedding products, employees and assets in an effort to pad the P&L. It is “reorganizing” the company, rather than linking to market needs. Remember that fewer than 7% of companies that slip into a growth stall ever successfully maintain an ongoing 2% growth rate. Because they are focused on internal issues, and financial management – rather being clearly focused market trends.
Don’t just skip buying Cisco – if you are a shareholder, SELL!
When you go after competitors, does it more resemble a gladiator war – or a David vs. Goliath battle? The answer will likely determine your profitability. As a company, and as an investor.
After they achieve some success, most companies fall into a success formula – constantly tyring to improve execution. And if the market is growing quickly, this can work out OK. But eventually, competitors figure out how to copy your formula, and as growth slows many will catch you. Just think about how easily long distance companies caught the monopolist AT&T after deregulation. Or how quickly many competitors have been able to match Dell’s supply chain costs in PCs. Or how quickly dollar retailers – and even chains like Target – have been able to match the low prices at Wal-Mart.
These competitors end up in a gladiator war. They swing their price cuts, extended terms and other promotional weapons, leaving each other very bloody as they battle for sales and market share. Often, one or more competitors end up dead – like the old AT&T. Or Compaq. Or Circuit City. These gladiator wars are not a good thing for investors, because resources are chewed up in all the fighting, leaving no gains for higher dividends – nor any stock price appreciation. Like we’ve seen at Wal-Mart and Dell.
The old story of David and Goliath gives us a different approach. Instead of going “toe-to-toe” in battle, David came at the fight from a different direction – adopting his sling to throw stones while he remained safely out of Goliath’s reach. After enough peppering, he wore down the giant and eventually popped him in the head.
And that’s how much smarter people compete.
When everyone was keen on retail stores to rent DVDs, Netflix avoided the gladiator war with Blockbuster by using mail delivery.
While United, American, Continental, Delta, etc. fought each other toe-to-toe for customers in the hub-and-spoke airline wars (none making any money by the way) Southwest ferried people cheaply between smaller airports on direct flights. Southwest has made more money than all the “major” airlines combined.
While Hertz, Avis, National, Thrifty, etc. spent billions competing for rental car customers at airports Enterprise went into the local communities with small offices, and now has twice their revenues and much higher profitability.
When internet popularity started growing in the 1990s Netscape traded axe hits wtih Microsoft and was destroyed. Another browser pioneer, Spyglass, transitioned from PCs to avoid Microsoft, and started making browsers for mobile phones, TVs and other devices creating billions for investors.
While GM, Ford and Chrysler were in a grinding battle for auto customers, spending billions on new models and sales programs, Honda brought to market small motorcycles and very practical, reliable small cars. Honda is now very profitable in several major markets, while the old gladiators struggle to survive.
As an investor, we should avoid buying stocks of companies, and management teams that allow themselves to be drug into gladiator wars. No matter what promises they make to succeed, their success is uncertain, and will be costly to obtain. What’s worse, they could win the gladiator war only to find themselves facing David – after they are exhausted and resources are spent!
Research in Motion became embroiled in battles with traditional cell phone manufacturers like Nokia and Ericdson, and now is late to the smartphone app market – and with dwindling resources.
Motorola fought the gladiator war trying to keep Razr phones competitive, only to completely miss its early lead in smartphones. Now it has limited resources to develop its Android smart phone line.
Is it smart for Google to take on a gladiator war in social media against Facebook, when it doesn’t seem to have any special tool for the battle? What will this cost, while it simultaneously fights Apple in Android wars and Microsoft for Chrome sales?
On the other hand, it’s smart to invest in companies that enter growth markets, but have a new approach to drive customer conversion. For example, Zip Car rents autos by the hour for urban users. Most cars are very high mileage, which appeals to customers, but they also are pretty inexpensive to buy. Their approach doesn’t take-on the traditional car rental company, but is growing quite handily.
This same logic applies to internal company investments as well. Far too often the corporate reource allocation process is designed to fight a gladiator war. Constantly spending to do more of the same. Projects become over-funded to fight battles considered “necessity,” while new projects are unfunded despite having the opportunity for much higher rates of return.
In 2000, Apple could have chosen to keep pouring money into the Mac. Instead it radically cut spending, reduced Mac platforms, and started looking for new markets where it could bring in new solutions. IPods, iTunes, IPhones, iPads and iCloud are now driving growth for the company – all new approaches that avoided gladiator battles with old market competitors. Very profitable growth. Apple has enough cash on hand to buy every phone maker, except Samsung – or Apple could buy Dell – if it wanted to. Apple’s market cap is worth more than Microsoft and Intel combined.
If you want to make more money, it’s best to avoid gladiator wars. They are great spectator events – but terrible places to be a participant. Instead, set your organization to find new ways of competing, and invest where you are doing what competitors are not. That will earn the greatest rate of return.
Evolution doesn’t happen like we think. It’s not slow and gradual (like line A, below.) Things don’t go from one level of performance slowly to the next level in a nice continuous way. Rather, evolutionary change happens brutally fast. Usually the potential for change is building for a long time, but then there is some event – some environmental shift (visually depcted as B, below) – and the old is made obsolete while the new grows aggressively. Economists call this “punctuated equilibrium.” Everyone was on an old equilibrium, then they quickly shift to something new establishing a new equilibrium.
Momentum has been building for change in publishing for several years. Books are heavy, a pain to carry and often a pain to buy. Now eReaders, tablets and web downloads have changed the environment. And in June J.K. Rowling, author of those famous Harry Potter books, opened her new web site as the location to exclusively sell Harry Potter e-books (see TheWeek.com “How Pottermore Will Revolutionized Publishing.”)
Ms. Rowling has realized that the market has shifted, the old equilibrium is gone, and she can be part of the new one. She’ll let the dinosaur-ish publisher handle physical books, especially since Amazon has already shown us that physical books are a smaller market than ebooks. Going forward she doesn’t need the publisher, or the bookstore (not even Amazon) to capture the value of her series. She’s jumping to the new equilibrium.
And that’s why I’m encouraged about AOL these days. Since acquiring The Huffington Post company, things are changing at AOL. According to Forbes writer Jeff Bercovici, in “AOL After the Honeymoon,” AOL’s big slide down in users has begun to reverse direction. Many were surprised to learn, as the FinancialPost.com recently headlined, “Huffington Post Outstrips NYT Web Traffic in May.” Source: BusinessInsider.com
The old equilibrium in news publishing is obsolete. Those trying to maintain it keep failing, as recently headlined on PaidContent.org “Citing Weak Economy, Gannett Turns to Job Cuts, Furloughs.” Nobody should own a traditional publisher, that business is not viable.
But Forbes reports that Ms. Huffington has been given real White Space at AOL. She has permission to do what she needs to do to succeed, unbridled by past AOL business practices. That has included hiring a stable of the best talent in editing, at high pay packages, during this time when everyone else is cutting jobs and pay for journalists. This sort of behavior is anethema to the historically metric-driven “AOL Way,” which was very industrial management. That sort of permission is rarely given to an acquisition, but key to making it an engine for turn-around.
And HuffPo is being given the resources to implement a new model. Where HuffPo was something like 70 journalists, AOL is now cranking out content from some 2,000 journalists and editors! More than The Washington Post or The Wall Street Journal. Ms. Huffington, as the new leader, is less about “managing for results” looking at history, and more about identifying market needs then filling them. By giving people what they want Huffington Post is accumulating readers – which leads to display ad revenue. Which, as my last blog reported, is the fastest growing area in on-line advertising
Where the people are, you can find advertsing. As people are shift away from newspapers, toward the web, advertising dollars are following. Internet now trails only television for ad dollars – and is likely to be #1 soon:
So now we can see a route for AOL to succeed. As traditional AOL subscribers disappear – which is likely to accelerate – AOL is building out an on-line publishing environment which can generate ad revenue. And that’s how AOL can survive the market shift. To use an old marketing term, AOL can “jump the curve” from its declining business to a growing one.
This is by no means a given to succeed. AOL has to move very quickly to create the new revenues. Subscribers and traditional AOL ad revenues are falling precipitously.
But, HuffPo is the engine that can take AOL from its dying business to a new one. Just like we want Harry Potter digitally, and are happy to obtain it from Ms. Rowlings directly, we want information digitally – and free – and from someone who can get it to us. HuffPo is now winning the battle for on-line readers against traditional media companies. And it is expanding, announced just this week on MediaPost.com “HuffPo Debuts in the UK.” Just as the News Corp UK tabloid, News of the World, dies (The Guardian – “James Murdoch’s News of the World Closure is the Shrewdest of Surrenders.“)
News Corp. once had a shot at jumping the curve with its big investment in MySpace. But leadership wouldn’t give MySpace permission and resources to do whatever it needed to do to grow. Instead, by applying “professional management” it limited MySpace’s future and allowed Facebook to end-run it. Too much energy was spent on maintaining old practices – which led to disaster. And that’s the risk at AOL – will it really keep giving HuffPo permission to do what it needs to do, and the resources to make it happen? Will it stick to letting Ms. Huffington build her empire, and focus on the product and its market fit rather than short-term revenues? If so, this really could be a great story for investors.
Google rolled out its newest social media product this week. Unfortuntately for Google investors, this is not a good thing.
Internet usage is changing. Dramatically. Once the web was the world’s largest library, and simultaneously the world’s biggest shopping mall. In that environment, what everyone needed was to find things. And Google was the world’s best tool for finding things. When the noun, Google, became the verb “googled” (as in “I googled your history” or I googled your brand to see where I could buy it”) it was clear that Google had permanently placed itself in the long history of products that changed the world.
But increasingly the internet is not about just finding things. Today people are using the internet more as a way to network, communicate and cooperatively share information – using sites like Facebook, LInked-in and Twitter. Although web usage is increasing, old style “search-based” use is declining, with all the growth coming from “social-based” use:
This poses a very real threat to Google. Not in 2011, but the indication is that being dominant in search has a limit to Google’s future revenue growth through selling search-based ads. And, in fact, while internet ads continue growing in all ad categories, none is growing as fast as display ads. And of this the Facebook market is growing the fastest, as MediaPost.com pointed out in its headline “On-line Ad Spend up, Facebook soars 22%.” In on-line display ads Facebook is now first, followed by Yahoo! (the original market dominator) and Google is third, as described in “Facebook Serves 25% of Display Ads.”
While Google is not going to become obsolete overnight, the trend is now distinctly moving away from Google’s area of domination and toward the social media marketplace. Products like Facebook are emerging as platforms which can displace your need for a web site (why build a web site when all you need is on their platform?) or even email. Their referral networks have the ability to be more powerful than a generic web search when you seek information. And by tying you together with others like you, they can probably move you to products and buying locations you really want faster than a keyword Google-style search. BNet.com headlined “How Facebook Intends to Supplant Google as the Web’s #1Utility,” and it just might happen – as we see users are increasingly spending more time on Facebook than Google: Source: Silicon Alley Insider
So, you would think it’s a good thing for Google to launch Google+. Although earlier efforts to enter this market were unsuccessful (Google Buzz and Google Wave being two well known efforts,) it would, on the surface, seem like Google has no option but to try, try again.
Like many tech competitors, Google’s had a game-changer come along and move its customers toward a different solution. Google Plus will be in a gladiator war, where everyone gets bloody and several end up dead. NewsCorp is finally exiting social media as it sells MySpace for a $550m loss – clearly a body being drug from the colliseum! Even with its early lead, and big expenditures of time and managerial talent, NewsCorp was thrashed in the gladiator war. Source: BusinessInsider.com
Google may have a lot of money to spend on this battle, but shareholders will NOT benefit from the fight. It will be long, costly and inevitably not profitable. Yes, Google needs to find new ways to grow as the market shifts – but trying to do so by engaging such powerful, funded and well-positioned competitors as the big 3 of social media is not a smart investment.
And that leads us to why Google + is really problematic. Resources spent there cannot be spent on other opporunities which have high growth potential, and far fewer competitors. BI‘s headline “Google kills off two of its most ambitious projects” should send shudders of fear down shareholder backs. Google had practically no competitors in its efforts to change how Americans buy and use both healthcare servcies and utilities such as electricty and natural gas. Two enormous markets, where Google was alone in efforts to partner with other companies and rebuild supply chains in ways that would benefit consumers. Neither of these projects are as costly as Google+, and neither has entrenched competition. Both are enormous, and Google was the early entrant, with game-changing solutions, from which it could capture most, if not all, the value — just as it did with its early search and ad-words success.
Additionally, Chromebooks is now coming to market. Android has been a remarkable success, trouncing RIM and with multiple vendors supporting it rapidly taking ground from Apple’s iPhone. Only Google has made almost nothing from this platform. Chromebooks offers a way for Google to improve monetizing its growing – and perhaps someday #1 – platform in the rapidly growing tablet business against a very weak Microsoft. But, with so much attention on Google+ Microsoft is given berth for launching its Office 365 product as a challenger. With so much opportunity in cloud computing, and Google’s early lead in multiple products, Google has a real chance of being bigger than Apple someday. But it’s movement into social media will not allow it to focus on cloud products as it should, and give Microsoft renewed opportunity to compete.
Google is setting itself up for potential disaster. While its historical business slowly starts losing its growth, the company is entering into 3 very expensive gladiator wars. First is the ongoing battle for smartphone users against Apple, where it is spending money on Android that largely benefits handset manufacturers. Secondly it is now facing a battle for enterprise and personal productivity apps based in cloud computing where it has not yet succeeding in taking the lead position, yet faces increasing competition from Apple’s iCloud and Microsoft’s new round of cloud apps. And on top of that Google now tells investors it is going to go toe-to-toe with the fastest growing software companies out there – Facebook, Linked-in, Twitter and a host of other entrants. And to fund this they are abandoning markets where they were practically the only game changing solution.
There’s a lot yet to happen in the fast-moving tech markets. But now is the time for investors to wait and see. Google’s engineers are very talented. But it’s strategy may well be very costly, and unable to compete on all fronts. You may not want to sell Google shares today, but it’s hard to find a reason to buy them.
