Facebook: Not $$$ocial Enough?

Earlier this week General Motors decided to stop advertising on Facebook. GM made this announcement “after deciding that paid ads on the site have little impact on consumers’ car purchases” according to the Wall Street Journal (“GM Says Facebook Ads Don’t Pay Off”). Albeit, the total amount, $10 million, is but a tiny fraction of Facebook’s whopping $3.15 billion in reported 2011 ad revenues, the timing was not great. It was less than one week before Facebook’s much vaunted IPO.

So while the revenue loss is paltry, there are two larger concerns for Facebook. One, GM is the third largest advertiser in the US and their announcement might lead other advertisers to re-evaluate their advertising spend on Facebook. The second more worrying thing is that it is a major blow for a young company trying to convince the world that “social advertising” is not only effective but provides Return on Investment (ROI). In the short-term the impact may not be that great simply because Facebook is about to reach 1 billion active users (approximately 14% of the world’s population); and this number alone is hard for most advertisers to ignore. But as a public company, with shareholders, they will soon need to prove that they are worth their high valuation, in revenue terms.

Every company feels compelled to have a social advertising budget, even though there is scant evidence that these dollars generate any sales, or return on investment. The advertising and social marketing industry will have you believe they are effective sales drivers but the reality is that there are few independent studies or evidence to support this hypothesis. If you think about the number of times you have clicked on a Facebook ad or decided to make a purchase based on seeing someone’s status update (or wall post), you will likely reach the same conclusion. Facebook’s ad revenue actually fell in the first quarter of 2012 from the fourth quarter of 2011.

Here is something to ponder about Facebook’s current IPO valuation. According to Anant Sundaram (of Tuck School of Business at Dartmouth) the average price to earnings ratio for the majority of US companies, over the last one hundred years, has been around 15. Apple is at 15 and Google is apparently a little bit higher. However, Facebook’s price-to-earnings ratio is 100.

He goes on to say that “at current levels, it would take Facebook 100 years to generate enough profits to pay for itself. That number is so high because investors are betting Facebook’s profits are going to explode. Sundaram says, judging from this price these investors seem to believe that the company’s profits will double, and then double again, and then double again — all within the next few years. For that to happen, Facebook will need to attract 10 percent of all advertising dollars spent on the planet “across all media – print, billboards, radio, television, Internet.”  To put this in perspective he adds that “Facebook had just over $3 billion in global ad sales. TV ad sales in the U.S. alone last year were $68 billion.” (NPR: “Is Facebook Worth $100 Billion?”).

Facebook recently tried a new revenue generation experiment in New Zealand by charging people two New Zealand dollars (US$1.53) a post to ensure that their own friends see what they write (Wall Street Journal: “Facebook Gets Religion for Revenue”). Are your status updates and posts on Facebook valuable enough to start paying to share it with your friends? I know mine are not and never will be.

Let’s just say I am holding off buying Facebook shares because I don’t believe they have a real revenue model, yet. That is not say that they will not find a Google like search cash cow but let’s just say ad banners on the site are not the Holy Grail that Mark Zuckerberg wants us to believe.

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RIP Steve Jobs

There is much talk about Steve Job’s being a creative genius and digital visionary, the impact he had almost single-handedly on how we consume personal media. His use of design in both product development and user experience. We are also being reminded of Apple’s cult-like customer fan following that routinely spends days and nights camping on streets outside Apple stores, all around the world – just to be the first to get their hands on the next Apple product, and often just for the new version of an existing product. Nobody will dispute any of this…

Today, I walked by an Apple store and was shocked to see a makeshift memorial. There was a wall being created outside against the glass facade with flowers, cards, candles, pictures, clever manipulations of old Apple ads and dozens of post-it notes that people were handwriting while they stood and paid their last respects to Steve Jobs; like he was a close personal family member! He was the CEO of a company, a corporate executive, not a pop-star, a princess or a movie star – I was amazed.

I knew Job’s was a great showman and presenter but it’s one thing to admire a CEO or captain of industry and quite another for makeshift memorials to start popping up outside Apple retail stores all over the world on news of his death. I saw people standing silently, some looked like they were praying and most were writing a personal note and sticking it on the glass that made up the front of the store. It was not teenagers who were flocking but people in their late fifties and sixties who made up the majority coming to pay and post their last respects to the “genius who changed their life forever.” I am not sure if this happened when George Eastman or Henry Ford died but I cannot imagine any other corporate executive, no matter the extent of his genius, being lauded in this way.

In the end it is a testament not only to the brand that Jobs built but the products he delivered in creating this unbelievable emotional bond with customers. Apple is made up of his DNA and is a part of him. No compromise. Pure design cannot carry the day alone, great advertising and marketing only get you so far, and pure showmanship runs thin if the products don’t deliver – in the end Apple products have delivered time and again, and in the odd instance when one does not, Apple replaces it or fixes it for free; no questions asked. Therein lies the secret of turning a loyal customer into an evangelist for life.

Will the #Apple fall far from the tree?

First, I want to wish Steve Jobs the best and hope his health improves.

I guess we all knew this day would come. The board, the shareholders, the employees, the analysts and the evangelists; it’s just that we had all hoped it would be much, much later.

Whether you are a fan of Steve Jobs or not, what nobody can dispute is the fact that he single-handedly turned a fledgling company and tired brand into the world’s most envied and admired; one that is now on a path to become the world’s first trillion dollar company. However, what is most fascinating about the Apple story is how he achieved this. His vision, passion and workaholic nature are well-known but Jobs took this to another level entirely. It is said that he was involved in every decision right down to determining the type of wire that will secure MacBook’s in the Apple stores – that is both incredible and insane. Jobs’ is the only CEO I can think of who seems to go against conventional wisdom in every sense and still come out on top, every time. He is a classic example of someone who zigs, when everyone else is zagging.

Most CEO’s will tell you that the key to successfully growing your company, after you become a certain size, is to hire really smart people and then give them latitude to operate and a wide berth to do their jobs – and get out of the way. Not, like Jobs, remain involved in every minute decision; like what glass to use on the staircases of your retail stores. We know Job’s remained involved in every decision, even as Apple blew past Microsoft and Oracle to become the most valuable technology company on the planet.

Even more amazing is the fact that while the whole tech world seemed to acknowledge that the old Microsoft “proprietary” technology model was a failure and no longer sustainable in our new global ecosystem; filled with consumer demand and a need to constantly adapt and innovate in an open source way. So “open” has become the new buzzword for software development and management philosophies. Even companies like Procter & Gamble are now embracing this for rapid product prototyping, development and go-to-market strategies. On the other hand we have Apple who have created a completely closed and proprietary ecosystem for their products – and have been more successful than any other company. It is almost as if Steve Jobs’ philosophy and management style are completely counter-intuitive. This applies right down to the bets Jobs has made over the years. Like launching a tablet when everyone said that there was never going to be a market for a device that was not quite as small as a cellphone and not quite as powerful as a laptop; and we all know how that turned out.

We have been told that Apple has a very deep management bench and that may well be true but when a larger than life CEO like Steve Jobs vacates his position, he leaves a very rare and large hole in a company that few other leaders do.

So the 337 billion dollar question with Tim Cook is; how far will the Apple fall from the tree?

#Netflix and the New Red…

Yesterday customers received an email from Netflix, and in one fell swoop this much loved company, one that was a darling of its customers, had put that strong equity on the line. It is ironic that they were thanking customers for their business, in this email, even as they were clearly holding a gun to their heads with another price hike.

Netflix succeeded in pummeling Blockbuster by re-inventing the movie rental category with an innovative business model, high customer satisfaction and a low cost service that was based on giving customers flexibility and not forcing them to adhere to policies designed to make the company lots of money.

I understand that Netflix’s runaway success propelled then into a space filled with deep pocketed competitors in the form of cable providers, telecoms, Google, Apple, Amazon, movie studios, TV networks and a slew of other companies all vying for a  piece of the pie.  I also realize that the company desperately needs cash to pay for the rising cost of content, and has to lower its costs (example postage) to survive and compete.

Steve Swasey, VP Corporate Communications said today, to MSNBC:

“We anticipated some folks were not going be happy with the change. It didn’t surprise us. 30,000 or so is a sub set of 23 million subscribers. They’re not speaking for the majority. We would like those members to stay with Netflix, but the reality is people will leave. We’ll make it up over time and the service will continue to grow. I don’t want to sugarcoat this. We do expect a certain amount of people to leave the service. Besides, Netflix members already go to Redbox, order cable, go to theater and Amazon.”

Barely a few months ago Netflix changed its plans raising their prices and forcing everyone to add a streaming option. So it seemed like they were gently moving their customer base into a streaming only world; gently being the keyword because new releases are currently not available for streaming and will not be for the foreseeable future and the streaming quality is still mediocre, at best.

Netflix has a customer base that is has been the envy of every company; staunchly loyal and fiercely evangelist; and many would have followed the company to the ends of the rental earth. But large numbers are now seeing a very different kind of red. And somehow I don’t think Mr. Swasey’s words are going to placate them.

This customer outrage is picking up steam. It remains to be seen how many of their        23 million customers will cancel their subscription, rather than pay the 60% increase being demanded, and how many will stay to help Netflix truly stay out of the red…

Not So CrackBerry…

“The stream of high-profile departures from Research In Motion Ltd.’s marketing department over the last few months has put the spotlight on an area where the BlackBerry maker has traditionally been weak: understanding and talking to ordinary consumers.”  Read more at Wall Street Journal: http://on.wsj.com/kluJiu

I worked with RIM as a result of a partnership one of my clients had with them around 2002. At the time BlackBerry ruled the roost. They were the only smartphone and had a near total monopoly of the corporate market and the “Road Warrior” segment. In fact, every corporation and service provider was courting and wooing RIM to the point that each one of their employees seemed to believe that they had just invented sliced bread; they were not arrogant, just thrilled – it felt like a company that believed it had conquered the summit.

Except for one problem – their device was crap!

This is the issue I had with BlackBerry at the time. It was called CrackBerry by business people because they said once you picked one up it was impossible to put it down again. But what RIM failed to realize or acknowledge then and for many years after, was that it was not the beauty, ease-of-use or the user experience of their devices that people were addicted to but the access to 24×7 emails and information it gave them. And that BlackBerry was dominant because nobody else offered the same access. Not because they had invented a device nobody could live without.

As a result the other blindness they suffered was that they never anticipated or cared about the consumer market. Apple walked in the back door and totally blew them away. Suddenly, BlackBerry was faced with increased competition in the business segment from Microsoft and others, and had totally missed a huge opportunity in the consumer market; which Apple realized can be easily transferred into the corporate one with a better device and user experience.

It is a classic trap that most companies and brands fall into. When they totally dominate or have a near monopoly of a market or segment, they stop doing the one thing that allowed them to become so dominant – innovate! Instead, they rest on their laurels, build opaque walls around themselves, stop listening to customer needs and begin to believe that their customers will blindly follow them forever.