Hardee-Har-Harrible Burger PR Campaign

Here's an item, in its entirety and with the owner's permission, from a mailing list that goes out exclusively to the more-or-less working press (sorry, not allowed to provide a link):

SPECIAL REPORT: PIMPING FAT AS A PRESS ACTIVITY
Every once in a while, we come across a PR program that is so innately insensitive to press people we feel compelled to share it. This one, on behalf of the Carl's Jr. (West) & Hardee's (East) "Spicy Buffalo Chicken Sandwich" asks press people to shill in some especially unpleasant ways. The first stops are at 2 Web sites. One offers images & video clips of Ashley Hartman, the skimpily-wardrobed young blonde actress from their commercials, in which double entendres about breasts & nudity are a big play. You're supposed to fill in a Web form to send an e-mail that a friend will misinterpret as being an invitation from Ashley to rendezvous at the restaurant, only you surprise & fool your friend by showing up instead; they send you a coupon for a dollar off the sandwich as your "reward". (Note that they just brought you & your friend to the restaurant to spend your money there, while the coupon saves you enough to consider a quarter of your sandwich as free). The other Web site expects you to put their graphics & links on your Web site; the only difference between what they're asking & an affiliate program is that they're not offering any payments in return. We're supposed to also buy into promoting the sandwich as the latest in "boneless hot wing technology". Despite their wishes, we boned up: according to their customer phone center, their Spicy Buffalo Chicken Sandwich (just under $4) has 2.59 grams of sodium & 780 calories, of which 330 are from its 36 grams of fat (6 grams saturated). Gee, that $1-off coupon is like getting 9 grams of fat on the house! To recap, they're asking press people to pimp their sandwich & their fake-date-with Ashley promo in exchange for a coupon. We're not seeing respect on that menu.

Some PR and marketing campaigns are honest mistakes and some are the results of mishandling. Then there are the ones that are so poorly conceived and structured that you have to wonder whether the company's competitor broke into the corporate headquarters and left a folder labeled "Do this" on some marketing wunderkind's desk. I haven't seen the PR materials, but if this report is accurate, then I'm surprised that the company's shareholders aren't storming the gates. Oh, wait, they won't have to because management forgot to lock 'em.

Wal-Mart Shows Problem of Moving Outside of Brand

The New York Times has a fabulous piece on Wal-Mart's attempts to expand its brand outside the strictly discount realm and even posts a report done for the company by its former advertising agency last October.

It's interesting to get an inside lok at the troubles Wal-Mart is having in expanding its market. I find myself almost feeling sorry for management there because of the relentless drive of financial markets to keep seeing growth. The company has 138 million shoppers a week, for gosh sakes. Just how are they supposed to grow a number like that?

Yet that is the expectation, and so Wal-Mart is trying for more affluent shoppers. But that goes smack up against its brand identity as a discounter, which is a bad idea. No company can be all things to all people, no matter how large it is. As the story and report say:

But now, as Wal-Mart experiments with contemporary clothing, flat-screen televisions and nine-layer lasagna, that format has become a hindrance. To a shopper who wants to purchase a single dress for an evening out or a DVD player to watch a movie, "Wal-Mart’s one-stop shopping format becomes a time-consuming irrelevant obstacle," the report says.

That environment is conducive to "zero-time" shopping, in which a customer spends just a few seconds thinking about a product, like a new bottle of dishwashing soap. "But people don’t buy electronics, home décor and apparel in zero time," the report says.

The inevitable result is a loss of focus that will eventually cause financial problems. You'd think there could be other options for the company. For example, let it ship orders of commodities to more affluent customers - products they're associated with but at higher margins for the convenience factor. Maybe there are services they could provide as shoppers spend time in the store - dry cleaning, oil changes, photocopying - that don't require the sense of expertise and trust. Some of these it could provide through partnerships with companies that are already in the business. But going upscale? Time to send management out into the stores to work for a week and see what their business is really all about.

Cyberwar Spills Onto Business

It's good that people are paying some attention to cyberwar - the extension of conflicts onto the Internet. The New York Times even is running a story about it. But cyberwar is old business. One of the biggest motivations for hackers these days is politics of various sorts, and even the "least developed" (whatever that means) countries have access to basic computer technology that takes relatively little infrastructure to put into practice.

I remember researching one story where I was speaking with representatives of a security analyst firm as well as other experts and an Italian hacker. Politics is a major factor in hacking these days, with thousands of businesses fending off attacks and trying to recover from web site defacements of political slogans. There are active political hacking groups in various parts of the Middle East and in China, for example. And companies that are associated with particular countries can find themselves targets of sophaisticated people who have little else to do. Digital security has to become a strategic issue, which is still an unusual approach among corporations.

Slippery Slope of User-Generated Content

There's an amusing piece in the New York Times about companies looking to customers to create ads and the pain of the experience.

This is a concept that I think is flawed because the companies generally aren't approaching it the right way. You aren't going to get a professional spot from the vast majority of consumers. The writing, production qualities, and acting are more likely than not going to be bad. There's a reason people make their livings doing this sort of thing. If everyone could do it, you'd see much better marketing on television.

You also aren't going to get a whole bunch of spots that sees your product the way you'd like to see it:

One of the most viewed Heinz videos — seen, at last count, more than 12,800 times — ends with a close-up of a mouth with crooked, yellowed teeth. When Ms. Kaplan Thaler [an advertising executive not involved in the Heinz consumer commercial competition] saw it, she wondered, “Were his teeth the result of, maybe, too much Heinz?”

Yup, often people will mock your brand, your product, what part your product plays in life, and your reasons for looking to consumers for your advertising content.

But companies like Heinz could learn something by removing the ketchup-tinted glasses. Forget for a second that you would hope to get a useful commercial out of this. Why not use it as a window into what consumers are thinking. How do they react to your product? What associations do they make subconsciously that come out through the work? You've essentially asked for an admittedly self-selecting set of customers to hold forth on what you do. For a company, this is the value that the Internet really provides - not using the web to promote your own view, but seeing how you are perceived and how people perceive themselves. Look for archetypes, themes, and associations that might help you talk the customer's language. That makes a whole lot more sense than hoping to find the advertising needle in the haystack of would-be funniest home videos.

Dell to Sell in Wal-Mart - Future Profit Hell?

Dell is going to start selling two sub-$700 model multimedia computers through Wal-Mart. According to the New York Times story, and other analysis I've seen, this is the first step to Dell reforming its sales strategy so that it's not entirely dependent on direct sales.

I think it's also the beginning of the end for the theory that Dell can do no wrong. The PC business has extremely tight margins. Dell has been able to keep it's profits about three times that of its competitors. According to electronics market analysts I've spoken with, it has done so by beating up on its suppliers. From what I've heard - and I've tried talking to Dell about this in the past, but they wanted no part of the story I was writing at the time - the company pushes prices down so far that the vendors essentially have no profit, and then says that the manufacturing volume will give the vendors the economies of scale to make bigger profits from their other customers. In other words, the manufacturers are supposed to have other customers essentially subsidize Dell's business.

Some have pushed back. When Dell was coming out with its first PDA, for example, there were three firms bidding. Then Dell said what it wanted to pay and allegedly two of the Asian manufacturers walked away from the business because it didn't make any sense to take it. In an industry used to margins of just a few percent, that would have had to be a low number, indeed. Also, some of Dell's suppliers have been hearing from their other clients who have said, "Don't expect us to fund your work with Dell."

There is probably little to no room to move on the price of components. So, from where is the margin for Wal-Mart going to come? It will have to be Dell's margins. Now consider the volume of business the retailer does. This is going to change the overall margin that Dell sees, and that's even before the additional sales support demands that will drive Dell's already over-burdened and under-performing technical support function to needing life support itself.

Eventually companies come across the realization that growth isn't infinite and that high industry margins may not be sustainable. Hopefully for Dell its investors will be understanding, but that's even less likely.

SEC Bailout for Small Business? Or Big?

Companies have been putting heavy pressure on the SEC for a number of years now, trying to get the agency to lessen the reporting requirements of Sarbanes-Oxley. And it came out with an expected change yesterday. Although the actual text isn't up on the SEC, it essentially says that companies can now focus on the areas where fraud would be most likely to occur, using a risk management approach. Many journalists and spinners tout the new guidance as great for small business. And that it may be, but if you read the SEC's news release (the full guidance text isn't yet up on the web site), the mention of size is:

The Securities and Exchange Commission today unanimously approved interpretive guidance to help public companies strengthen their internal control over financial reporting while reducing unnecessary costs, particularly at smaller companies. The new guidance will enhance compliance under Section 404 of the Sarbanes-Oxley Act of 2002 by focusing company management on the internal controls that best protect against the risk of a material financial misstatement.

There isn't anything there suggesting that only small cap companies will feel the effects. Given the track record of large corporations in the past, I'm guessing that much of the actual reform that was starting to take place will now recede into the horizon, as managers and directors quickly use the chance to lessen the "overwhelming burden" of which they've been complaining. Interestingly enough, during this difficult time for them, profits hit record highs, as have stock prices. So, if the difficulties haven't shown up in financial performance, are they, perhaps, far less than the griping would suggest?

Google Wants to Know Everything - About You

According to a piece in the Financial Times (I'm not sure how this got to be a free link, but who am I to complain?), Google wants to know everything about everybody. Literally:

Asked how Google might look in five years’ time, Mr Schmidt said: "We are very early in the total information we have within Google. The algorithms will get better and we will get better at personalisation. The goal is to enable Google users to be able to ask the question such as 'What shall I do tomorrow?' and 'What job shall I take?'"

There you have it - Google with the gloves off. Aside from questions of privacy, civil liberty, and propriety this naturally raises, there are some serious business issues.

To the degree that Google succeeds, it puts virtually all businesses in its debt. Depending on how it decides to analyze and answer such questions, it directs people in their choices. If your company is on the outs with Google, might there be a chance that it freezes out your chances with customers? Will you have to - eventually - pay a fee to remain in the running, if not with the current management, then with a future team? People who think that all the tumult over Google and Yahoo and Microsoft is solely about online advertising aren't looking at the bigger pictures. In a society where an increasing number of people want to be told what to do, having an ever-increasing collection of information on them as well as an ability to be a front end to the Internet means controlling business beyond what can happen even in a monopoly.

Qwest Gets Caught Tilting Survey Results in Ad

Telecom carrier Qwest decided to run a comparative ad, showing how people "preferred" its broadband service to that of rival Comcast. But there are good reasons never to base a marketing campaign on shaky numbers: you could get caught. That's exactly what happened to Qwest in this Rocky Mountain News article, from organizing response segments to make themselves look good to trying to ignore a margin of error high enough to call all the results into question.

Book Publishers to Let Public Vote on Title Ideas

There's a piece in the New YorkTimes about a fascinating situation in the book publishing business - letting the public pick winners before they're published. A virtual market called Media Predict will give people fantasy cash and let them vote with their pseudo-dollars on what book proposals will sell. Simon & Schuster "teamed up with Gather.com, a social networking site, to run an “American Idol”-style contest in which voters pick a manuscript for Simon & Schuster to publish."

It's interesting, but I think it also underscores how little understanding book publishers have of their most fundamental task: choosing what to send into print. This experiment smacks of desperation. But after so many years of effectively playing Eenie, Meenie, Minie, Moe, I can see how they might feel a bit anxious.

Some Consumer Information Database Companies Allegedly Help Con Artists

The New York Times article about database company compilers of consumer information actively helping con artists was incredibly shocking. Great reporting and angle. Here's one example:

InfoUSA advertised lists of "Elderly Opportunity Seekers," 3.3 million older people "looking for ways to make money," and "Suffering Seniors," 4.7 million people with cancer or Alzheimer’s disease. "Oldies but Goodies" contained 500,000 gamblers over 55 years old, for 8.5 cents apiece. One list said: "These people are gullible. They want to believe that their luck can change."

According to the story, Wachovia Bank and database company InfoUSA (one of the major compilers, as I remember from my direct marketing days) kept "working with criminals even after executives were warned that they were aiding continuing crimes, according to government investigators."

I've got an idea. The executives can completely empty their pockets and reimburse the victims. I do hope some zealous prosecutor or class action attorney decides that this seems to be a case of collusion, where the companies and their executives directly profited from illegal activities. RICO, anybody?

More Online Ad Acquisition Madness

Within a 24-hour span we've seen WPP, a British marketing services company, acquire 24/7 Real Media (search marketing, advertising management, and digital media), and then Microsoft spend $6 billion for aQuantive (digital ad agency, marketing technologies, and ad space wholesaler). What seems to be happening is the logical continuation of Google's acquisition of DoubleClick and the alleged merger talks between Microsoft and Yahoo. Everyone's trying to get into online advertising - because they know that companies will spend ad money somewhere and it's likely going to be increasingly for digital forms. It's one huge growth area, and companies want to get in line for the cash payouts, and to control important future directions of communications and business.

One good rule of thumb is that the more companies pay for acqusitions, the more they'll ultimately have to charge to recoup the price. Furthermore, the crossover between marketing services and underlying technologies that make digital marketing possible have been significant. That spells potential conflict of interest and growing costs, which, if taken to an extreme, could make digital advertising a lot less cost effective.

A New York Times article notes this:

“To effectively compete with the likes of Google and Yahoo, Microsoft needs to have a large base of advertisers,” said Anthony Noto, an analyst with Goldman Sachs. Mr. Noto said that Google had more than 500,000 advertisers and Yahoo about 300,000, while Microsoft has only a small fraction of that. “As long as that gap exists, they will have an inferior ability to monetize their own product,” Mr. Noto said.

Now aQuantive, which is based in Seattle, will bring many advertisers to Microsoft — and more.

I'd have to disagree a bit. What drives an online advertising business is not having a lot of advertisers, but having a lot of people who want to see those ads. It may be that Microsoft will get those people, but can they keep them? So far the company has done poorly in attracting audiences, so the question becomes whether they can maintain the viewers they will need for real success.

Learning from Retail Profit Growth

Kohl's, JC Penney, and Nordstrom all saw their first quarter profits jump, respectively 25, 13, and 19 percent. The first two attribute the jump to private label goods, while the last said that its customers seek designer goods.

But even the private label work is being designed by names - Vera Wang and Polo Ralph Lauren, for example. Maybe consumers are getting tired of paying for junk. That's not to say designer labels are necessarily better, but at least there is that buyer association. And it's the design name that seems to be important. Yet by doing more private label work in particular, the companies cut out layers of expense, which is why the profit jumps were so far ahead of revenue lift. Penney's revenue was up only 3 percent, while Kohl's was up 12.5 percent and Nordstrum's same store sales rose 9.5 percent. At the same time, Federated missed analyst expectations and there are warning sounds coming from Arkansas as Wal-Mart says it, too, could fall short of Wall Street targets. Clearly the two should be looking at what their competitors are doing right.

Forbes.com's Answer

I sent a link to my previous post to Jim Spanfeller this morning and was surprised to get an immediate reply:

I am on the road right now as and such don't have the full time at this moment to give your post the time it deserves. Hopefully next week will permit that.

But to your suggestions I can tell you that yes we do every single one of them and a few more.

That all said, while we have much more transparency then ever and as such there is more "science" in the process, the job of an editor still involves a lot of art. Which is where your thoughts about red sweaters come in.

In any event more later. In the meantime let me close by saying thanks for taking the time to review and comment on our site. It truly is much appreciated.

So while the site does heavily use page views, there is apparently a broader context. This does raise an interesting question, though: how are journalists going to adapt to publications becoming more driven by business necessities? The heyday of journalism as a "public trust" was largely supported by newspapers making levels of profit that most people today would consider unconscionable because for certain types of advertising they were often the only game in town and charged what the market would bear. Now editors and reporters no longer have the insulation of luxurious financial success.

Open Letter to Forbes.com

To: Forbes.com chief executive Jim Spanfeller

I saw the New York Observer article about your current turnover and how there is a tension between the business and editorial sides over page view metrics. According to the story, at least one former staffer called Forbes.com "a page-view sweatshop," and then it quoted you as categorizing that as a "fair thought." Then came the following section:

"One of the fundamental differences of online versus offline [is that] online is completely trackable," he said. "You have 60, 70, 80 stories [in print], and you don’t know how well consumed each one is."

Therefore, Mr. Spanfeller said, "not looking at the data would be foolish," and "tracking page views is something that is very important."

I'd like to suggest that you may be too focused on a particular metric without putting it into a wider context, which could quickly send you down the wrong track.

Yes, it's probably an arrogant observation, but I'll make the argument. First, have you ever done a usability study on the web site to see how people move through it and where their eyes rest? Have you done a correlation study between where articles appear and how often they're viewed? Have you checked the screen resolutions of people coming in to the site to see if your layout can all be seen without the consumer having to scroll back and forth to see everything? (Personally I got tired of having to scroll down the screen to see what there was.) If not, you could in fact be directing people in particular ways, and then effectively trying to follow them to make decisions, with the result that business becomes a puppy chasing its own tail.

Next, it might be wise to try and get a handle on what types of stories actually draw people in - not into the stories themselves, but which topics and headlines help to keep people stuck to the site and which ones over time have a strong correlation with people coming to the site in the first place. Granted, this is really hard to decipher, but it is important. If you want customers to drive what you have on the sight - and why wouldn't you? - then you need to make sure that you're drawing the right conclusions. The classic example is of the apparel company in which red sweaters vastly outsold blue sweaters. The management team knew it made the right decision to emphasize red sweaters - until the next year when a competitor took most of the company's market share by selling blue sweaters, because that's what customers really wanted, although the company made so few blue units that the consumers made due with what they could find, until someone else offered the products they really wanted. Analyzing data is important, but some data in the wrong context can be worse than none at all.

Why Big Companies Are Slow on New Media

While writing my recent article for Newsweek Japan, I had an extensive conversation with Robert Scoble, who used to be with Microsoft and wrote a popular blog about the company, until he left in the fall of 2006 for a start-up. He had always been pretty balanced in his views, and the blog was credited with putting a more human face on the business. He explained how in 2005, the folks in Redmond passed on one opportunity after another - and it's something that applies to many companies these days.

“Kevin Johnson came to our group when I was at Microsoft and said most of our growth will come fromadvertising,” he said. “What he was trying to get us to understand is that the growth of the company will come from advertising, not from selling another copy of Windows or another copy of Office.”

So far that makes perfect sense, as Microsoft is running into a mature market. There's a lot of potential room in such countries as India and China, but that is going to take time to get the volume that would really drive company growth, and Wall Street is addicted to that economic expansion.

“I laid out 13 things that Microsoft should buy or start building, and the answer that came back ... was a couple of thousand words and had the term business value 13 times," he explains. "It was too small a value to get. I was telling thim to pay attention to something that hadn’t yet sold for $20 million." The companies he was recommending included such ones as MySpace, Flickr, and Skype.

But that makes perfect sense if you know anything about large corporations. There's actually method behind it all. A corporation, particularly a public company, has a legal responsibility to make more money for the shareholders. Buying something that doesn't even have $20 million in revenue is like asking a venture capital investor to kick in $1 million. It takes them as much time to invest that amount as to invest something ten times larger, so the larger one becomes a more cost effective deal as there's a chance for return on more capital. If you do a bunch of small deals, then you don't have enough resources to do enough deals to soak up all the money you have.

Now comes the problem - what Scoble calls the doubling effect. Ever hear about the person offered either $1 million or else a value, starting with a penny, that doubled every day for a month? The schnook takes the million, not realizing that at the end of the 30 days, the total will be $5,368,709.12.

If you knew what you'd get at the end, you'd take the larger amount. "I told them on day 15, 'I see a doubling penny. Will you go buy these things?' They said, 'We don’t believe you because that penny’s only kicked out $50 so far.' It doesn’t look interesting until day 28, and then all of a sudden it looks real interesting and everbody wants it." And by then it's pretty unlikely that you're going to get it.

As he observes, Microsoft doesn't have any doubling pennies and yet that's what the company needs to really grow based on advertising. It may be too late. Yet this isn't just a lesson for Microsoft, as all large companies have this blindness. They don't see future success because when they can afford it, the opportunity doesn't look good.

When Cleaning House Isn't Reform

The New York Times article about executives being fired for outrageous behavior may seem like the beginning of a new responsibility in corporations, but I don't think that it is. If it were, you'd see more executives sent packing when their bahavior came to light internally. But these are always high-profile scandals - that is to say, the corporations are always in reaction to public rebuke. Individuals are, of course, to blame for their own actions, but what sort of business culture permits or even, at times, encourages such behavior? Boards of directors should be setting the tone, instilling values, and insisting on them, even if no one else is looking.

Microsoft Yodels Yahoo

(The following is a story of mine running translated right now in Newsweek Japan)

It only took one initial report a little over a week ago about potential merger talks between Microsoft and Yahoo to generate some of the biggest buzz the online industry has seen. Even as further stories suggested that the two companies were actually considering a strategic online partnership, interest was still intense because of one word: Google.

The search engine company has competed online with Yahoo and Microsoft and thrashed them both, becoming the premier destination for finding information and delivering ads. And so Yahoo and Microsoft hope that somehow the combination of the former’s audience – the top ranking web destination according to site ranking service Alexa.com, with visits from more than 25 percent of all global Internet users – and the latter’s technology leadership might let them compete more effectively.

Were this any other industry, the combined forces would be powerful: almost $51 billion in 2006 revenue and well over 80,000 employees. However, on the Internet, size isn’t enough. Customers must identify a company and its site as the preferred spot to get something done, whether to keep in contact with friends, share video, get news, or look for some piece of information. Lack that connection with people, and your business is bound for bad times. Microsoft and Yahoo is just one example in the online industry of how companies are trying to use alliances to gain a spot in the hearts of customers – though it’s not clear that the approach will often work.

Finding examples of corporations that are using acquisitions for greater customer contact is easy. For example, Yahoo bought the popular photo sharing site Flickr (recently closing its own service, Yahoo Photos, because so few people used it). News Corp acquired personal networking destination MySpace as part of Fox Interactive Media, the Internet division the company created in 2005. “That’s working out quite well,” says a top venture capitalist Todd Dagres of Spark Capital. “MySpace already had presence in the online world that Fox didn’t.”

The difference between these acquisitions and a possible Microsoft-Yahoo marriage is that they were targeted at popular but still niche properties that had enthusiastic customer bases. Amalgamating more broadly based companies, however, is too unfocused. Unless companies can catch the eye of the public, they will remain stuck where they are as their competitors blow past them.

Google is a danger to Microsoft and Yahoo because it competes with them in the vital areas of search engine services and online advertising, being far more successful at both. According to NielsenNetRatings, Google’s share of U.S. searches in March was 53.7 percent, while Yahoo had 21.8 percent, and Microsoft, 10.1 percent. So Google brings more people in who want information.

Then it delivers small ads whose content matches the search terms that users choose. The result is advertisements that people often actually want to read – and many advertisers willing to pay lots of money to Google. According to Karsten Weide, program director of digital media and entertainment at market researcher IDC, Yahoo was the online advertising leader until 2005, when Google blew past them. Last year, according to research firm eMarketer, Yahoo had 15% of U.S. paid search advertising, compared to Google’s 58.7%, and next year it projects Google as taking over three-quarters. “It’s dominant already and growing so fast that it will be difficult for the other players to catch up,” he says.

That spells trouble for the other two. According to Yahoo’s 2006 annual report, 88 percent of the company’s revenue came from advertisers. And while 80 percent of Microsoft’s income is from selling copies of Windows and Office product families, the company sees its economic future elsewhere because the old software lines are now mature businesses that are unlikely to offer high rates of business growth. Before becoming vice president of media development at PodTech.net, Robert Scoble was a Microsoft developer who also wrote a popular blog about the company. He remembers upper management stressing two years ago “that the growth of the company will come from advertising, not from selling another copy of Windows or another copy of Office.”

Yet Microsoft’s online advertising revenues have been flat at about $2.3 billion for the last four years while the industry has grown at an annual rate of over 30 percent, according to Weide. That means the company has faced a constantly declining market share. “I’m at a loss,” he says. “How do you pull zero percent in a growth climate like that? It’s an accomplishment in itself.”

The problem is that bigger is not necessarily better on the Internet. The attitude comes from an old strategy of traditional industries. By acquiring other businesses, a company could create economies of scale, driving down manufacturing and distribution costs and pressuring competitors. On the Internet, though, a small and reasonably funded company can quickly reach millions of consumers: look at MySpace or YouTube.

Microsoft’s difficulty is that it understands selling packaged software, not the media world of online, so it tries to copy someone else’s success. According to Scoble, Microsoft is preoccupied with FOG – fear of Google. “Microsoft has some technologies that are really good, but they’re in clone world right now,” Scoble says. “They’re trying to clone everything that Google is doing.” For example, Microsoft is emphasizing online ad sales and even giving away use of software business applications on its Live.com site. Unfortunately the drive to copy another means that the company remains reactive to the Internet and not developing the new services that will catapult it to the lead among consumers.

Yahoo has a grasp of media, but can’t force how consumers will react. Look at its acquisition of photo sharing service Flickr. That step was necessary because Yahoo’s own photo sharing service, Yahoo Photos, simply never caught on with users. “Now you’re going to bring that together with a behemoth like Microsoft and be able to operate in a nimble and innovate way in an industry that really thrives on rapid [change]?” asks Willan Johnson, formerly a vice president at Yahoo and now general manager of SupplyFrame.com. “Many have speculated that if that deal went through, you’d want to buy Google stock.”

In the view of Kim Caughey, a senior investment analyst at Fort Pitt Capital Group, the combined entity would have a hard time hiring the “cool people … to continually create new products to drive people to your web sites and capture eyeballs.” They would find a large-scale company a bad fit. “If they have a really great idea, venture capital will give them money,” she says.

Smaller entrepreneurial divisions might do the trick, but large companies typically don’t have interest in such endeavors because the returns are too small. Scoble found this when he worked at Microsoft and in 2005 urged management to consider purchasing such companies as MySpace, Flickr, or Internet phone service Skype when they were much smaller and less expensive to acquire. “I was telling them to pay attention to something that hadn’t yet sold for $20 million,” he remembers. “I asked, ‘Why aren’t you doing things in this market?’ and the answer was, ‘We’re too busy … running multi-billion dollar businesses.’” By the time large companies see the value, it’s often too late to acquire the truly innovative businesses that are now literally worth billions of dollars.

There still might be sense in a close alliance between Microsoft and Yahoo, even if not for an online consumer market. Caughey says there might be natural synergy for corporate customers – an integration of Microsoft’s commanding presence on desktops with Yahoo’s search technology. The two could become a way to pull together data scattered throughout a large company in the form of word processing documents, spreadsheets, and other files – an area that has caught Google’s eye. Or Yahoo and Microsoft could develop software and systems that would allow others to create the next big thing for consumers. Maybe even Google developers could give the products a test. They probably wouldn’t have to search too hard to find them.

Another Company Burned By Faulty Translation

Something I posed on my En Words blog makes sense on the business front as well: a British menswear store sold shirts that, unknown to them, had in Russian a racist ethnic cleansing slogan. This will become one of those classic stories of how companies get burned when they don't take enough care with other languages.

Smaller Packages, Better Environment, Bigger Profits

In a New York Times article, reporter Claudia Deutsch writes about a growing trend of manufacturers to cut the amount of packaging they use. That way they get to be "greener" while making more green.

It's a complex problem, because sometimes one solution causes problems farther down the line, or the new packaging might not protect the products in transit. But the important point, I think, is that environmental concerns and profits are linked in the long run. When companies think broadly enough, they can find solutions that satisfy most every constituent and need in their ecological ecosystems. Such examples of real business thinking in action are like breaths of fresh air. No wonder.

Hollywood Considering "Opening" Movies in People's Homes

Here's a Reuter's story about how U.S. cable operator Comcast had held talks with unnamed Hollywood studios about allowing people to see a movie in their homes on the same day it opens in theaters. Comcast COO Stephen Burke talked about fees in the $30 to $50 range.

The news here isn't the angle of the story that Comcast is trying to compete with premium offerings that other cable carriers are pursuing. It's that the studios have gotten so spooked that they're considering giving up on maintaining any time between theatrical and DVD release.

They wanted this gap because it meant an increase in revenues, with audiences paying premiums to see titles before they it the DVD shelves. The distributors and studios took the vast bulk of the ticket price, with the theater operators needing to sell refreshments to make a profit. But attendance is down, and why not? People increasingly own large-screen televisions with surround sound that probably give roughly equivalent experiences as attending a tiny multiplex. So people wait. This at least would let them get some of the money rather than having the audience completely disappear from the first release phase. I'd hate to own a theater at the moment, as this has to be a scary prospect.

Cocaine Energy Drink Un-Shelved

Redux Beverages, makers of the energy drink Cocaine, is withdrawing the product from the market, at least until it can devise a new name and packaging, according to the New York Times. This is the sort of business story that makes you wonder what in the hell these people were thinking. Ah, yes, here's what they were thinking according to Clegg Ivey, a partner in the venture:

“Of course, we intended for Cocaine energy drink to be a legal alternative the same way that celibacy is an alternative to premarital sex,” Mr. Ivey said. “It’s not the same thing and no one thinks it is. Our product doesn’t have any cocaine in it. No one thinks that it does.”

“We like to think we have a great sense of humor,” he said. “And our market, primarily folks from ages 20 to 30, they love the ideas, they love the name, they love the whole campaign. These are not drug users.”

Sure they love the campaign. They probably also enjoy the red and white design of the can with the quasi-printed looking logo running vertically, a clear take-off on Coca-Cola. But, again, what in the hell were they thinking? Of course a business wants to make money, but people do have responsibilities beyond financial gain. Generating to the backslide of the collective mentality does no one any good in the long run. We've seen this recently in talk radio with Imus getting booted for racist remarks. There's plenty of criticism of the more destructive and misogynistic practicioners of hiphop and rap. We have so-called teen television channels pouring forth an alarming amount of sex, drugs, and other uncontrolled behavior, all to garner ratings and higher advertising prices. There should be some thiings that people are ashamed to do for money, and such activities are at the top of the list. By trading on sex or drugs, for example, they are simply legal forms of prostitution and drug dealing, except not as straightforward and honest.

Can CPG Companies Do Relationship Marketing?

Advertising Age has a piece on consumer packaged goods giant Proctor and Gamble and an interview with Elva Lewis, a 21-year P and G vet and the person who's supposed to help the company move into non-mass marketing. Her grade on how they've done so far? D - "theoretically a passing grade."

According to her, the company has a "decent" relationship with 10 million households instead of "solid" ones with 40 to 60 million. And, mind you, there's no telling from this article what the definitions of these relationships actually are. After so many years of mass marketing, I'd wonder those might be. Lewis talks about the need to spread direct marketing expenses across all the company's brands - and the difficulties in getting those brands to cooperate, as they've been successfully siloed for so long. One problem I could see is that a relationship doesn't exist unless both sides think that it does. If they're not hearing back regularly from their customers, it could be that they will remain in the realm of mass marketing without ever knowing it.

TV Advertisers Get Taken By Their Own Strategies

The New York Times Magazine had an issue devoted to middle age, and one of the article was called TV's Silver Age. Part way in there is the following paragraph:

Every Wednesday morning, newspapers across the country run a chart of the previous week’s highest-rated television shows. Most television executives basically ignore that list. They have eyes only for subsets of those overall figures, particularly one they call “the demo.” That’s televisionspeak for viewers ranging in age from 18 to 49. The demo may seem nonsensical — after all, what does a high-school graduate have in common with someone becoming a grandmother for the first time? — but it drives the television business.

If your company does or even contemplates television advertising, read that paragraph and the three that follow. They lay out the following history of ad buying:

1. Nielsen audience ratings were once broadly based.


2. ABC, being last in the rankings, decided - strictly as a marketing tactic for itself - to emphasize the 18-to-49 demographic because the network was attracting younger audiences and it looked good.


3. Further, ABC argued that the baby boom generation was vital, because it was used to televion and was huge.


4. Advertisers bought into this and the special reports that Nielsen generated for ABC became the important numbers.
   
5. As demographics shifted, advertisers never got it through their heads that the old arguments for skewing young had less and less credibility.

As a result, the advertiers still look for young audiences without ever considering where the most consumer dollars are available to be had. If you've read through this far, here's the conclusion: folks, you have just been taken for, oh, about 20 to 30 years and have largely been wasting the money your companies entrust you to wisely spend.

How do I, a non-advertising expert, figure I can say this? Because I'm willing to look at the numbers. Now some good news: just because you've done everything one particular way for so long doesn't mean that you can't switch strategies. Here are some steps to at least start moving in the right direction:

1. Redefine your market segments. Make advertising segmentation match your customer segmentation as much as possible. If advertisers refuse, mutter "online ads" and the names of competitors, and that should make their spines bend over backwards.


2. Do some research to show how much per capita spending in your category happens in each of the segments.


3. Create a segment weighting factor. If, for example, 30-to-40 year olds buy represent 40% of your sales, the factor would be 0.40.


4. Compare average spending by your customers to the appropriate segment spending as a ratio. The higher the ratio, the more invested in your company the cusotmers are and the more important they should be to you and where you might be looking for more.


5. For any program, multiply the number of audience members in a given segment by the average category spend. Now you have a first approximation of how much money there is for your type of product watching that program.

Sure, "real" analytics would get far more complex, but you don't need to have a Ph.D. in mathematics to start understanding what is going on. Don't get snowed; get smart.

Journalists to Sue Hewlett-Packard

A number of the journalists upon whom Hewlett-Packard spied, trying to find who on the board was leaking information, are planning to sue the company. Well, there's a shocker, eh? Furthermore, CNet, at least, is considering its own options. The story says that the suit comes after "several months of negotiations with the company" on the parts of all the reporters who are known to have been the victims of surveillance. But the CNet journalists split off to take action separately, while some from BusinessWeek and the New York Times are still negotiating and the Wall Street Journal writers decided not to seek compensation. Looks as though the parties were far apart:

In an April meeting with H.P.’s outside law firm, Morgan, Lewis & Bockius of Philadelphia, the seven journalists requested an amount equal to several million dollars each, paid to them directly with their promise that most of the money, though not all, would be donated to charity. Hewlett-Packard’s offer was closer to $10,000 per reporter, roughly enough to cover the reporters’ legal bills, according to several people involved in the talks.

So not only did HP spy on reporters - and on its own board members - but it's trying to get off cheaply? Well, not counting the $14.5 million it agreed to settle a lawsuit from the California attorney general.

How incredibly dense a move. Let's say that it spent the several million and got everyone off its back. Would that really have been that much more expensive than antagonizing journalists everywhere and keeping its name in the press in such a negative way? Once again we see American business deciding to be penny wise and pound foolish.

Chinese Amusement Park Uncannily Like Disneyland

For those in business who want to believe that the Chinese government really wants to end copyright infringement, look at this article in Hong Kong paper The Standard. On web site Japan Probe there are more pictures of characters and even a setting or two that might be suspiciously familiar. There's also a video that includes the president of the state-owned part claiming that the characters are originals, not rip-offs. Oh, and that odd little character isn't Mickey Mouse - it's a cat with really big ears. At least, that's what they say.

Whether you have sympathy for Disney or not, such a government-controlled enterprise should give any business manager second thoughts about moving any serious enterprise to China ... unless they think that their intellectual property - from product designs to methods of manufacturing and trademarks - are so unimportant that they might as well be given away.

Internet Insecurity

As Network World reported, a homeless man accidentally knocked out service on the Internet2 network between Boston and New York by unintentionally starting a fire.

Many people in this country worry about security, particularly in relation to terrorism, but they forget how vulnerable much of the infrastructure is. I remember talking to one expert a few years ago who said that until shortly before our conversation, he knew of a major Internet switching point that was essentially unguarded. One car bomb could have taken out a whole lot of traffic all around the country, and even the world.

Lure of Lurid Billboards

The Washington Post ran a piece on how digitally-enhanced billboards have become an advertising powerhouse again, at least so far as billing goes. Most of the article will stand on its own, but one point I thought was interesting:

Though outdoor revenue still is a small piece of the ad revenue pie - CBS Outdoor made less than one-quarter of the revenue of CBS's television network last year - it is growing faster than every other traditional ad medium. At CBS Outdoor, 2006 operating income was up 21 percent over the previous year, the biggest gain of any CBS division.

But consider for a moment the relative dynamics. Television is a heck of a lot more expensive to produce than a client's ad, even if the billboards do have whizzbang effects. So maybe the comparative revenue isn't as telling as the amount of profit that stays in the corporate pockets.

When Copyright Protection Meets Users, Guess Who Wins?

Today's New York Times story about Internet users spreading a key anti-piracy code from Blu-ray and HD-DVD disks offers a number of business lessons. First, the quick background: people have been relentless posting - in some ingenious ways - a secret code found on high definition video disks since it was unearthed in February. An industry group - the Advanced Access Content System Licensing Administrator, which has such members as IBM, Intel, Microsoft, Sony, Disney, and Warner Brothers - decided to stop things in their tracks and began sending cease and desist letters, claiming that publishing the code was a violation of the Digital Millennium Copyright Act of 1998.

That was about as effective as putting out a fire with jet fuel. People put the code up everything and in forms including lyrics of a song and hidden within the information of a digital photograph. Even though such actions are against the law, there are so many people doing it that the industry hasn't a practical prayer of going after anyone legally. This is the nature of the Internet hydra: for each user you legally smite, dozens more pop up.

Now to the lessons. One is that if command and control attitudes didn't ultimately work with employees, what made anyone think that it would with customers? Another is that companies really out to learn from experience, as the same thing happened when hackers broke the copy protection on DVDs. Third is that when you try to maximize your profits and customers perceive that it's at their expense, they will be unhappy and find ways to make you unhappy.

The Internet has changed business, but not in the way most managers understand. The real difference isn't speed or global distribution, but rather a leveling of the communication playing field and the ascendancy of ideas that the communications can transmit. Company value is in intellectual property (ideas), though few act as though it is. Customers can talk to each other using an electronic megaphone that is largely out of the control of corporations, and the ideas they express can have demonstrable impact on companies. Treat the customers with respect and you may get it returned. Try strong arming them, and the attempt is likely to blow up in your face.

Kroger Taking Marketshare From Wal-Mart?

Cincinnati-based grocery chain Kroger is actually taking market share in groceries from Wal-Mart, according to a story in the Cincinnati Enquirer. According to some analysis - the article doesn't make it clear who did it, "a recent building binge of supercenters by Wal-Mart not only failed to garner it more market share, but may have led a growing number of shoppers to seek out Kroger's neighborhood shopping approach."

In addition to emphasizing convenience, Kroger is closing the price gap.

A pricing analysis by Bank of America analyst Scott Mushkin last fall found that Kroger's prices were 7.5 percent higher than nearby Wal-Mart supercenters, compared to 20 percent to 25 percent five years ago.

Kroger chairman and CEO said that his company has increased marketshare in 27 of "34 major markets in which supercenters have achieved at least a No. 3 market share." Here's Wal-Mart's statement:

"We continue to grow and have regained position as No.1 on the Fortune 500 list of companies ... We are a No. 1 shopping destination for Americans. New customers continue to go to supercenters, particularly in Ohio."

So what's to learn? Wal-Mart's reliance on a rhetorical response is, I think, telling. There's no way I can know if the numbers that Kroger claims are correct, but logic is on their side, in a way. No company can own all marketshare, and no one approach works everywhere in every category. I'm not sure that consumers would view groceries as a category in which prices are too high, and so might not consider Wal-Mart. Or it could be that people don't like the idea of shopping in a big box environment for all products.

Supreme Court Makes Getting Certain Patents More Difficult

The Supreme Court has made it more difficult to combine existing inventions into new patentable ones in KSR v. Teleflex. The New York Times calls the decision the "most important patent ruling in years."

KSR had developed an adjustable gas pedal system. Teleflex, which owned a patent that included a claim for "a position-adjustable pedal assembly with an electronic pedal position sensor attached a fixed pivot point," sued for infringement. KSR argued that the claim wasn't valid because it combined known inventions in an "obvious" way and won summary judgment in District Court. Teleflex appealed and the Court of Appeals for the Federal Circuit (CAFC - the court that handles appeals in patent cases) reversed the decision, stating that the District Court has misapplied a general analysis set in the Graham v. John Deere Co. of Kansas City case:

• determine what the previous inventions cover
  
• ascertain the differences between the new invention and the previous ones
  
• note how much skill is necessary to get from the previous inventions to the new one
  
• determine how obvious the new invention is

However, the Federal Circuit added a "teaching, suggestion, or motivation" (TSM) test to help determine the question of how obvious the new invention was. Under this, "a patent claim is only proved obvious if the prior art, the problem’s nature, or the knowledge of a person having ordinary skill in the art reveals some motivation or suggestion to combine the prior art teachings."

The District Court found that Teleflex's claim was obvious, but the Federal Circuit effectively said, "Sorry, but you have to show that a 'skilled artisan' would have been motivated enough to come up with the new invention." Part of that approach required finding published articles or other evidence that someone could have thought of the particular combination before getting summary judgment. If they didn't exist, then the result would be a full jury trial.

The Supreme Court disagreed, saying that the Federal Circuit had "addressed the obviousness question in a narrow, rigid manner that is inconsistent with §103 and this Court’s precedents." All that KSR - and, now, any other company - need do in objecting to a patent on these grounds is show that there's an obvious solution to a problem.

Ironically, while the Court is making it tougher to get the patent, it hasn't made it any easier to necessarily know if a given combination rises to the level of something patentable. As the Internet Patent News Service harshly puts it:

The KSR decision is semantic nonsense, introducing yet more undefined terms (e.g., "real innovation", "extraordinary", etc.) to a statute that is constitutionally meaningless given the lack of definition for its key term, "obvious". What's a "real innovation" - one that occurs in a flash to a genius?

And there's the nub of the problem. The difference between inventing something and not can be one of those slap-yourself-in-the-head moments, when someone realizes that all along there has been a solution to a problem. So if anyone who knew as much as the inventor could have come up with the solution, does that mean that it no longer deserves a patent? A judge becomes a Monday morning quarterback, deciding in hindsight that something was obvious ... or not.