Missing The Point In Online Music Sales

There’s a fact-heavy article in today’s NY Times about the increasingly crowded field in online music. In a nutshell, the article sees the forest, but misses the trees, wondering why businesses would get into online music at all. Not only are the costs of starting up a online music storefront steep fixed costs of technology + marginal costs of selling & marketing the service), competition that threatens to further erode everyone’s margins (Wal-Mart has priced tracks on its music store at $0.88 a track). The article cites Real Networks CEO Rob Glaser, and Steve Jobs’ opinions about the difficulties of making a buck in the online music business to underscore this point:

"The fixed costs of building this stuff out from scratch are high," Mr. Glaser said.
"It's not easy to do this well," Mr. Jobs said. "How," he asked, will other companies "justify investing R.& D. into something where there is no money to be made?"

Well, duh. However, where the article really gets the whole online music store model legitimately wrong is in its belief that without selling hardware to accompany it, selling music online is a foolish enterprise. Check this other comment:

Hardware manufacturers are trying to apply the lessons of Apple by combining the low-profit-margin business of selling songs with the higher profit margin business of selling the music players to go with them. That kind of thinking favors companies like Dell, which is selling its Digital Jukebox, and Sony, which once owned the portable music business with the Walkman, but stumbled as companies like Apple jumped into digital music. The company has said that it will create an online service this spring that will work seamlessly with its players. The new service, called Connect, will allow customers to pay for songs with frequent-flier miles from United Airlines.

While hardware sales might be able to cover for the economic losses of running an online music store in the short-term, they can’t do so for the long-run. (Note: I’m guessing that since the market leader—Apple—has already admitted on several occasions that it just breaks even on online music sales, it’s probably losing money on its investment from an NPV perspective. I’d also wager that if Apple is just breaking even, everyone else—with the possible exception of Real Networks, which operates a subscription model—is losing money.) The prices of all MP3 players—including iPod—will fall (as has already begun), or companies will start adding more features into their MP3 players (thereby raising costs, and diminishing margins) in an effort to compete. A far better model is to control the standards for digital music—DRM— and then hopefully parlay that standard into other media businesses, and create an annuity for yourself. (The Wall Street Journal grasped the essence of this logic in some ways on Monday, but didn’t get grasp all of the possibilities of DRM.)

So here’s the model as we see it: Apple sells as many tracks as possible on iTunes which enourages people to buy iPods, and subsequently more tracks on iTunes, while iTunes and iPod still have the cachet or higher perceived benefit to draw people away from lower-priced music services or competing products. If you’re investing in Apple, you want Apple to hit a scale where they control most of the market for online music, at which point the music companies and artists (content creators and copywrite owners) cease offering tracks to their competitors, and offer them solely to Apple, since Apple offers them access to the largest market possible, at the lowest cost possible. This is what’s called a virtuous circle, and is the essence of the network effect Apple’s trying to pull off.

One other random note to consider in light of network effects: Apple’s coming partnership with Pepsi (giving away 100m tracks on iTunes to Pepsi buyers, via codes distributed via bottle caps) is kind of a stroke of genius. Ideally, it gets more AAC formatted tracks on the market, and gets iTunes in the hands of people who have yet to use it, thereby increasing the potential market for AAC. Pretty slick stuff for Apple, and we’d also say that the partnership looks pretty good if you’re Pepsi, since you get to attach yourself to the ridiculous amount of cachet and credibility that Apple’s managed to create in the all important youth market.

Posted by Matt Percy | Permalink | Comments (4) | TrackBack

Of Changing Airline Business Models & Urban Economics

As the economy is finally emerging what looks to be a period of sustainable growth, it’s interesting to take stock of the last few years, and see how the recession and upheaval of the last few years has affected a variety of industries, and the consequences that these changes have for society as a whole. The airline industry is one that’s particularly fascinating to think about in this regard, since it seems to have been permanently changed in a way that other industries haven’t. We’re curious to think about how some of these changes will affect the economic growth in larger and smaller cities throughout North America.

Broadly speaking, there are two dominant business models within the airline industry: 1) the hub-and-spoke model, utilized by American Airlines, United, and most of the flagship carriers of foreign countries; and 2) the “low-cost-carrier” or point-to-point model, favored by Southwest, RyanAir and others. The hub-and-spoke model requires aggregating passengers from smaller second-tier “spoke” airpports (say, Philadelphia, St. Louis, etc) at a larger hub airport (e.g. Chicago’s O’Hare, Heathrow) and in order to fly passengers to a similarly large hub. In general, hub-and-spokes usually break-even or take a small loss on at least some of the spoke-to-hub flights in order to maximize the the profits they can create on the lucrative hub-to-hub flights. Airlines can charge a premium—especially on business class and above—on some hub-to-hub cross-continent routes, and especially on some transatlantic or transpacific routes: hence, these routes are disproportionately important to a hub-and-spoke. Furthermore, since the fixed costs associated with building a hub-and-spoke are so high—aircraft, gates, landing rights—they create a powerful barrier to entry for potential competitors, thereby limiting further limiting supply, and raising the premium an airline can charge on these routes. Contrastingly, point-to-point low cost carriers (LCCs) try to fly shorter distances between secondary airports (Chicago’s Midway, Love Field in Dallas) where landing rights are less expensive. Crucially, these airports are less congested, enabling LCCs to turnaround aircraft much more quickly than competitors, thereby allowing for more frequent flights, more efficient aircraft usage, and most importantly, increase the amount of revenue they can generate per each aircraft seat by getting x many more flights per year out of each plane. LCCs generate barriers to entry by locking up gate rights at the airports they operate in, thereby keeping particular carriers out. (We’d guess this is ultimately the challenge JetBlue will face vs. Southwest, since the latter has a dominant position at the lion’s share of good secondary airports in the US.)

The consequences of the recession within the airline industry has been to validate one type of business model in the airline industry—the point-to-point low-cost carrier business model—while largely invalidating the previously dominant hub-and-spoke model . While the hub-and-spoke model can create huge profits during boom years—and we agree that it eventually will, as soon as corporate travel spending picks up again—the aforementioned high fixed costs of the model mean that it racks up huge losses during a bust period. This means that the hub-and-spoke model bears greater risk for investors, and therefore has substantially higher capital costs than a well-run LCC, further cutting into profits. (Moreover, in a post 9/11 and post-SARS world, the international destinations served by a hub-and-spoke have a greater risk associated with them, translating into added security and insurance costs for hub-and-spoke carriers.) In contrast, while the LCC point-to-point model offers slightly lower margins (since these carriers offer lower prices than hub-and-spokes), the flexibility of this model, and the lower prices, mean that it thrives in boom years as well as bust years, making it a safer investment over the long-run.

As hub-and-spoke airlines climb out of recession, they’re trying to trim their high fixed costs by offering a “leaner” version of themselves. In a nutshell, what this generally means is that smaller regional cities—the feeders of the hub in the hub-and-spokes, e.g. places like Pittsburgh (Brad’s hometown), Edmonton (my hometown), or Clevelands of the world now have many less flights connecting them to hubs than they did previously. Since these hub airports tend to be located in larger cities, and offer gateways to other larger cities either domestically or abroad, one potential consequence of changes in the airline industry is to reduce the connectedness of smaller regional cities to major hubs in the overall world economy. In short, it makes them less cosmopolitan and less global.

Being less connected to the world and national economy, and being less cosmopolitan and less global has significant competitive ramifications for smaller cities. Economically, this means that cities have less access to capital , since most capital tends to be clustered in what University of Chicago sociologist and urban studies guru Saskia Sassen has termed the “global cities,” e.g. larger first or second tier cities—London, New York, Chicago, Tokyo, Hong Kong. Less capital means less fuel for growth, and a less dynamic economy overall.

There are also economic disadvantages stemming from the cultural consequences to being less cosmopolitan and “worldly.” One result of removing some of the connections between a city like, say, Cleveland to that of New York, London, Paris or Tokyo is that smaller regional cities offer slightly less variation than their big city counterparts, making them less interesting on the whole. This lowered access to culture is far from trivial, if you subscribe to the Creative Class argument (which we do) proposed by Carnegie-Mellon economist Robert Florida, there’s a strong desire on the part of “knowledge workers” to locate in cities that offer greater cultural amenities and a dynamic environment. Knowledge workers—the computer programmers, consultants, analysts, venture capitalists and so forth—create and attract disproportionate amounts of wealth and capital, and therefore growth, and are therefore of pivotal importance to any city’s long-term future. For a small regional city, having less access to these workers only dims growth prospects.

So given that shifts in the airline industry seem likely to result in a new set of challenges for the economies of smaller regional cities, what should they do? While this is definitely a topic for another blog, we do have some high-level thoughts on the subject. One potential option would be for smaller regional cities to make the world come to them, either by playing up their unique resources (be they economic or cultural resources), to ensure that the world comes to them. For example, smaller cities like Austin, Portland or Vancouver have ensured that they’ve remained connected to the larger world either through adopting policies to develop or stress their cultural amenities (physical beauty and a vibrant downtown core in the case of Vancouver and Portland). An even more effective strategy for these smaller cities is to use the cultural amenities as a platform from which to drive future economic growth—coupling cultural policy that attracts knowledge workers with economic policy that encourages firms and workers to locate in a particular region. Austin, Texas is a case study in this regard, since it combines an eclectic local culture (South by Southwest) with a dynamic technology industry (Dell et al). In short, despite the fact that smaller cities will probably face a growing array of economic challenges, smart strategic planning can provide some templates for sustainable future growth.

Posted by Matt Percy | Permalink | Comments (30) | TrackBack

Marketing Via Rumor And Innuendo: A Thought Experiment

A few weeks ago, rumors started popping up on the Internet that Microsoft—a small company in Redmond, Washington—was poised to make “a significant announcement” regarding its video game console, the XBox, on Nov. 15, which just happens to be the two year two-year anniversary of the XBox’s launch, and the one-year anniversary of XBox Live, the online gaming service that complements the XBox. (We realize that some of our less savvy readers might have a hard time accepting that the Internet can play a significant role in fostering rumors, but a quick search reveals that this isn’t the first time that urban legends, rumor and innuendo have flown ‘round the Internet.)

A few days ago, rumors as to the precise nature of the content of this announcement began to circulate amongst several videogame-related websites. Specifically, it was claimed that Microsoft would be releasing Halo 2—the much anticipated sequel to its bestselling science-fiction military combat simulation, Halo, which has grossed upwards of $250m worldwide, and sold countless XBox consoles—roughly 8 months earlier than anticipated. Almost immediately, discussion boards, chat rooms and video-game related websites and blogs spun into overdrive, as XBox owners salivated at the prospect of playing what will arguably be the biggest console game of 2004 this year. However, as quickly as the rumor materialized, a member of Bungie—the Microsoft-owned software company that’s developing Halo—stepped up and quashed the rumor altogether:

Despite all the juicy rumors floating around the net lately, I can confirm with absolute certainty that Halo 2 is NOT coming out in 2003. As we have said for quite some time now, the game will be released when it is done and that will be in 2004. It is not coming out next week. It will not be on store shelves this holiday. Why would anyone want to do a "secret release" with a property as big as Halo 2 anyways? What possible benefit is there in sneaking it onto shelves without making the consumer aware? Please remember that unless you hear it direct from Bungie, you shouldn't pay attention to any release dates or speculation you see or hear. I'm sorry to crush hopes of playing the game early but it's better than getting your hopes up prematurely. I'm as eager as you are to get my hands on the finished game but we're not there yet. When the time is right, I imagine we will have more to say about a firm release date. For now, we stand by what we've always said - Halo 2 will be released when it's finished.

Rather than stopping the spread of November 15 rumor-mongering, though, Bungie’s announcement merely encouraged XBox owners and video game fanatics to revise the rumor, and argue that while Halo 2 wasn’t coming up, an “upgraded” version of the first Halo was. This re-release of Halo—called Halo Deluxe, or Halo 1.5—would be something like a director’s cut, featuring slightly upgraded graphics, possibly new levels, and online play over XBox Live, something that Halo fans have clamored for since the game’s release. This revision of the rumor made slightly more sense. As was noted on several video game sites and some respected industry publications, Microsoft could use this announcement to drive subscriptions to XBox Live, since many subscriptions would be up for renewal on Nov 15 (the one-year anniversary of the service), and moreover, the cost and technical complexity of re-releasing a slightly improved Halo would be SIGNIFICANTLY lower than rushing Halo 2 to market. Alas, for eager Halo geeks, this rumor was subsequently debunked by another Bungie employee this morning, in a slightly more terse fashion than the previous day’s statement.

So anyways, this whole videogame rumor-mongering thing got the marketing parts of our brains racing. (Cue image of hamsters running frantically on a wheel, lightbulbs turning on, smoke coming out of ears, etc.) Specifically, we began to think of the possibilities of utilizing the natural tendency of consumers—particularly hardcore, fanatical consumers of a certain product—to speculate and fantasize about the products they are most enthusiastic about. For example, let’s hypothetically speculate that Microsoft will indeed make a “major announcement” on November 15, the likes of which will send XBox owners and video game fanatics into paroxysms of delight. Let’s say, too, that Microsoft announces that it will make this statement to a few well-connected industry journalists, key influencers, and video game fanatics a few weeks prior to November 15, so as to seed anticipation. Furthermore, let’s also pretend that Microsoft makes a few cryptic references to “November 15” in its advertising copy (something which has supposedly already happened—Microsoft’s new ad campaign, featuring P. Diddy, supposedly features one ad where P. Diddy says “On November 15, you will believe.”—we haven’t found any hard evidence that this ad actually exists, but if anybody has actually seen it—and can verify it—let us know, and we’ll post a link) so as to encourage and foster speculation and rumor-mongering.

At this point of our hypothetical rumor-based buzz campaign, there would likely be plenty of user-driven gossip and excitement. In short, lots of great, free word-of-mouth. If Microsoft did follow through, and deliver a truly amazing product or service on Nov 15, the amount of customer gratitude, loyalty and support they’d have amongst their most die-hard customers would probably be phenomenal. Not only would they Microsoft have managed to market a product in a way that would truly differentiate it from the marketing clutter, sales of the product would probably be pretty phenomenal, too.

We’re speculating that the above scenario working well for media or entertainment products that have a strong legion of hardcore, devoted fans: Star Wars, the Matrix: Reloaded, Quentin Tarantino, books by Thomas Pynchon, J.D. Salinger, albums from certain bands, to name a few. Let’s go back in time to May of this year, and imagine that the Wachowski brothers announced at the beginning of a few weeks prior to the actual release of the Matrix that they were going to release their latest movie in a few weeks. Let’s also say that they’d also been able to keep the entire filming process of the Matrix 2: Electric Boogaloo totally and utterly secret. (This would have been harder to accomplish, but not necessarily impossible.) We’re confident that at this point, the hype machine would go into overdrive, and when the movie was released—assuming that it met the expectations of fans, which the Matrix movie didn’t—it would have had a pretty tremendous opening, one that would have been comparable to the numbers that it achieved with an expensive marketing campaign that was used to launch the movie.

We won’t beat the issue for much longer, but it is fun to conduct this thought experiment, and we’d love to see somebody actually attempt it in the real world, if only to see what happens. While we’re aware that this strategy sort of flies in the face of the traditional attitude that marketers should seed the market for an entertainment product with buzz or advertising months well in advance of a product launch—to get people salivating, and spreading the word!—it would be great to see marketers actually attempt to use the natural tendency of human beings to gossip and speculate in an interesting and entirely non-traditional fashion. So, uh, if there are any marketers of media or entertainment products with passionate and loyal fanbases (e.g. an army of geeks eager to do your bidding), we dare you to give this strategy a shot.

Posted by Matt Percy | Permalink | Comments (3) | TrackBack

Online Gaming For Fun And For Profit

There’s a thought-provoking article in this week’s Economist about the spectacular growth of online video games. The highlights:

[In 2002], Americans spent over $6.9 billion on games for a personal computer (PC) or a console (ie, a television-based unit such as Microsoft’s Xbox, Sony’s Playstation, or Nintendo’s Gamecube). Polls show that more than half of all Americans above the age of six play video games. Nor are the players all spotty teenagers: in 2002, 42% of console-game buyers and nearly two-thirds of PC-game buyers were over 36. A poll for the Entertainment Software Association said that 26% of all gamers are women: video gaming, it seems, is a more heavily female pastime than subscribing to The Economist print edition (just 8% of its subscribers are women). Young men dominate professional gaming, but that is bound to change, just as women broke into the previously male world of professional poker as the game became more popular and respectable.

We’re thrilled that the Economist is effectively validating a guilty pleasure of ours—we defy any of our readers to match our mad Halo skillz on a PC/mouse set-up, and we’ll gladly challenge some of you to some Rainbow Six action as soon as we pick up our copy—but (wearing our business hats for a moment), we were more intrigued by the Economist’s description of gaming for fun and for profit. Specifically, the Economist described something called “the World Cyber Games” that was held in Seoul, South Korea this summer, where video gamers competed for cash prizes and rewards:

On October 18th the fourth annual World Cyber Games (WCG) in Seoul ended with Germany victorious over 600 competitors from 55 countries. The German team will split a $350,000 purse stumped up by the South Korean government and by several corporations; Samsung alone spent $12m to back the tournament. The team had to beat a field of about 300,000 to qualify; Britain’s qualifying tournament saw about 10,000 people vying for 15 spots on the national team.

Reading about the popularity—and the size of the purse—of online gaming got us to thinking: how long will it be before Microsoft, Sony or Electronic Arts start holding online tournaments with significant prize money as a way to generate interest in their games? Imagine playing in a Madden online where the winner could garner cash (or other) prizes. Similarly, what about a basketball game that culminates every spring in an online tournament that parallels the NCAA’s march madness. Not only would such events further accelerate the growth of online gaming, they might provide marketers with another way to reach customers: e.g. Anheuser-Busch or Miller could sponsor the NCAA tourney as a way of reaching ever-so-hard to contact 21-34 year-old males. There’s already a huge number of individuals who attend LAN parties (events where sometimes as many as 128 users lug their computer gear to a rented space to play games in close proximity with one another over a lag-free LAN) where cash prizes—usually in the range of $500-$1500 are awarded, and it would seem to make sense for corporations to start sponsoring such activities. At the very least, it would certainly generate some buzz, if only because it would be so unusual (at first).

Posted by Matt Percy | Permalink | Comments (0) | TrackBack

People Movers: The Connectors

Ah the power of knowing very little about a helluva lot of people. Networking is no longer a nasty word (as MJP pointed out in a post earlier in the week about Monster.com). Guy Kawasaki said it best, whether speaking about human capital or knowledge capital, today's most successful "revolutionaries"

eat like a bird and poop like an elephant (p 113)
or to paraphase, consume 50% of their body weight in intelligence and spread it around in 165lb increments. Whereas Kawaski would label those who do so with "human" intelligence "revolutionaries", Wired calls them "nodes" in the recent story The Connectors: Meet The Hypernetworked Nodes Who Secretly Run The World. (thanks CreativeGeneralist)
The Wired article suggests that the "node" provides the social grease that gets things done. More often than not operating behind the scenes, "nodes" such as Clay Shirky, Ted Cohen and Seamus Blackley collect human capital and serve both as social filters and intuitive matchmakers that have enabled them to be the lynchpins behind the success of Xbox, and the Sonique/TerraLycos merger.
We believe that business leaders and their marketers have to spend less time trying to generate awareness among the masses and more effort attempting to find relevant means of tapping into those select "nodes" standing between them and "revolutionary" relationship-building. Sure, it is more difficult than investing dollars against a demographic target (ex. men 25-34) or industry segment via trade shows, but in the end it is an infinately more valuable investment. Just think. What if a marketer were able to convert a "node" into a "believer" who could take the message to the masses in a relevant fashion. More than customer evangelism...it would be less about simple marketing and more the bellwether of customer "movement" in the making.

Posted by Bradley Peacock | Permalink | Comments (1)

Networking For Fun & Profit: Thoughts on Monster.com's Matchmaking Service

We saw in the Wall Street Journal today that the job board Monster.com is in the process of launching a subscription-based “Professional Networking Service.” Effectively, Monster.com plans on setting up a site that will enable people to “network” with one another, and exchange information about opportunities, jobs, careers and goals. Here’s the skinny according to the Wall Street Journal:

Here's how it works. Users set up profiles containing information including their first name, first initial of last name, skills, job, employment history, schools, interests and location. Users then can search among the network by those categories. To contact a person, however, users must pay membership fees. The fee structure hasn't been finalized, but Monster said it is likely to be on par with rates charged by online dating sites and similar services. Monster Networking is set to go live in the first quarter of next year.

On powerpoint, the idea of a fee-based networking service for job searchers sounds particularly compelling. As most of us who’ve looked for jobs at one point already know, most jobs are discovered via informational interviewing or networking, whereas very few job seekers actually land a position via responding to an ad. (One recent lecture about social capital in a Kellogg class we're currently enrolled in as part of our MBA--Leadership in Organizations-- highlighted the fact that 60% of job-seekers land positions via networking, while just 18% of job-seekers found jobs via an ad). Consequently, Monster.com’s foray into creating a networking board sounds pretty savvy: it’s creating more value for consumers (allowing them to network directly with one another) while allowing Monster.com to create an additional revenue stream in the process.

In practice, however, Monster.com’s networking service raises several interesting questions. First, as most of us who’ve networked in the past already know, it’s usually far more effective to be referred to a contact in a network via an individual—e.g. a friend, colleague or co-worker—or by virtue of the fact that each of you share a common background (e.g. a degree from the same institution, membership in a professional organization, etc). In short, having the right introduction makes a world of difference in determining not only whether or not somebody will speak with you, but also about the type of information you’ll receive.

It will thus be interesting to see how Monster.com’s networking service works. The According to the WSJ, the service will primarily work by allowing you to search for individuals based on criteria that you’re interested in (job, background, etc), and then force you to pay a fee in order to “network” with those individuals. Monster will also require you to use a standard Monster.com “icebreaker” note to contact the person you’d like to speak with. Here’s the dilemma as we see it: consider how willing you’d be to receive a ton of requests for “informational interviews” from strangers whose only shared interest/identification with you is the fact that each of you have utilized Monster.com at some point in your career. However, if the service does a good job of introducing/referring people with similar backgrounds, interests, and group memberships towards one another, it could be very useful to subscribers. Finally, the ultimate litmus test for Monster.com’s networking service is how good it as connecting you to high-quality members (and vice versa): if most of the people you meet on the service are relatively lackluster, how likely will you be to subscribe for it? Monster’s current approach calls for users to “rate” one another after a communication, a la eBay’s rating system for buyers/sellers. While such a rating service works for financial transactions where it’s easy to measure value (e.g. did the seller get me my product in time? Did the buyer pay me in a timely fashion), it’s very difficult to rate more complicated social transactions, since what’s relevant to one person may not be relevant to another. For example, an individual who's hugely interesting and compelling to me, might have little or no value to you, making it difficult to rate that person's overall quality.

In any event, we’re very curious to see how the Monster.com networking service plays out—while we’re not immediately convinced that the incorporation of a Friendster-like networking service into a job searching service will pay dividends for Monster.com over the long run, the idea is certainly intriguing.

Posted by Matt Percy | Permalink | Comments (0) | TrackBack

Changing The Game

A close friend a Leo Burnett (thanks Sara) sent us two fascinating links today that have us buzzing around the office this morning. In today's business climate the timeline between innovation and commoditization is shorter everyday. The fruit of reverse engineering, globalization and the democratization of information, this trend has forced many a company/product to fail.

The name of the game is no longer purely "differentiation" within the category. To succeed today, companies must be flexible and willing to adapt BEYOND its category. Good companies may originate within an established category, but truly GREAT companies look for opportunities to CREATE THEIR OWN CATEGORY.

One company doing just that is PUMA. An established player in the athletic shoe market, PUMA has leveraged the 1970's nostalgia of its brand and morphed into the new hip hybrid in fashion apparrel. PUMA has moved from the number four player in a highly competitive category to the leader in a new category much of its own making, "athletic chic". No longer is Puma exclusively forced to compete head-to-head with the likes of Nike, Reebok and New Balance for the callused feet of sports fanatics. Puma has taken the time to understand its "meaning" (via customer segmentation) and has leveraged this knowledge into the dominant position in an equally lucrative (if not more lucrative) market populated by the likes of smaller, less well-financed players such as Vans and, most recently, Adidas.

And for a residual benefit to the dawning of the "athletic chic" trend/market, it will be increasingly difficult to pick out Americans on the Champs Elyses with their jeans and "white trainers".

Another company that has done a phenomenal job at crafting a niche category for itself is Mini Cooper. At the $16,000 to $20,000 price point, Mini could have found itself vying in the brutally competitive American automobile market witht the likes of the Ford Escort. However, Mini has zigged while everyone else zagged with "out-of -the-box" innovations like zero percent financing. Again, due to a bit of customer segmentation and an intuitive understanding of the various reasons that people "drive", Mini has laid claim to a niche previously owned by the likes of Mini's parent, BMW. The niche? The "ultimate drivers". Whereas, it was once believed only that "real" driving enthusiasts could appreciate the corinthian leather and fine craftmanship of the elite vehicles from Mercedes and BMW, Mini understands that there is huge opportunity with the under 20K "ultimate wanna-bes". The result has been that Mini no longer competes for customers who need to get from A-to-B for under twenty-thousand dollars. Mini competes alone for the subset of those individuals who drive not because they have to get somewhere, but because they want to enjoy the thrill of the road. Individuals who want to "motor". The residue of Mini's dogged pursuit of this previously untapped market, is that it has created a movement that has garnered micro-categories for "motoring gear".
One could argue that the recent success of PUMA and Mini are due to their obvious commonalities such as design innovation and co-branding. However, the true secret to their success is that both of these companies took the time to understand their market, their potential customer base and their respective places on these two planes. By understanding their unique "tapastries of meaning" relative to the competition, both Mini and PUMA were able to create wholly new categories that they alone could dominate.

Posted by Bradley Peacock | Permalink | Comments (0)

The Hidden Persuaders of the Publishing World

Slate published an interesting piece a couple of weeks ago about the power a clutch of book industry trade publications—specifically, Publishers Weekly; Kirkus Reviews ; Library Journal and Booklist—have over what books ultimately find their way into the hands of consumers. As the article puts it (somewhat ominously):

You've probably never read these magazines, even if you've seen their names on book jackets. But they're helping determine what you read. Together, they make up the big four of book industry trade journals, aimed at publishing insiders: newspaper and magazine editors, bookstore and library book-buyers, literary agents, and film industry types scanning them for movie rights. Long important as behind-the-scenes power brokers, they became even more powerful in the 1990s, when online booksellers signed deals with them. (Barnes & Noble.com, like Amazon, has a deal with Publishers Weekly.) Their reviews—300 or so words of plot summary, context, and a quick verdict—influence which books get noticed, bought, and promoted in the media.

The easiest way to think of Publishers Weekly et al is that they’re effectively the reviewers the reviewers you’re likely to read (whether its Entertainment Weekly, the New York Times Book Review, O Magazine, pick your poison) read. Consequently, these industry magazines have a lot of power determining what books ultimately get favorable buzz, and which ones don’t, which in turn affects sales. For example, Slate’s article reports that an unnamed author claimed that O Magazine cancelled a planned feature on her (which would have likely increased sales) after her book received less than glowing advance praise in Kirkus Reviews.

Assuming that Slate is correct about the power these four industry journals wield over the printed word in America (incidentally, shouldn’t somebody alert scolds like Oliver Stone or Jonathan Rosenbaum about the possibility of a vast and overarching conspiracy in the publishing world?) led us to think about some interesting marketing possibilities. First, could it be possible for publishers to market directly to the tastes and whims of individuals reviewing for these publications in the hopes of “influencing the influencers” (e.g. the harder to reach mainstream publications that dictate what we read?). It should be relatively easy to compose a list of these reviewers—consider that Slate reports that reviewers in at least two of these publications (Booklist and Library Journal) are directly credited, while reviewers in another (Kirkus) are credited in the masthead. (Identifying the reviewers that work for the only publication that doesn’t credit reviewers (Publishers Weekly) would probably require some sleuth work, but this would be by no means impossible.) Given these facts, we’d be surprised if some publishers didn’t already court the reviewers for these magazines already: perhaps by asking them for feedback on a book ahead of time, or by inviting them to swank literary parties where the wine and bon mots flow liberally, all in the hopes of currying favor for an author’s or publisher’s next big book. (Although this seems like a fairly cynical practice, it already goes on to some degree throughout publishing and media—this is why film critics get invited to oh-so-fabulous launch parties in Cannes, for example.)

However, we’d argue that the real opportunity for publishers to reach out to the reviewers of these publications and treat them as partners. While anyone can throw a bacchanal to woo writers (if we remember correctly from our respective days in grad school in the humanities, all it takes to impress most writers is a few jugs of cheap wine and some overwrought allusions to the fall of whatever empire you feel most jaded with nowadays), not everybody can work well with writers. There’s a chance for publishers to work with these reviewers through every step of the publishing process—inviting them to key meetings, introducing them to authors, having them act as an informal advisory board and generally, treating them more as human beings and less as naïve hicks who can easily be wowed by fabulous parties and a few minutes of face time with the editor of a publishing house. Put another way, any two-bit publishing firm can identify a reviewer for one of these industry ‘zines and market to them with a sledgehammer; not every firm can turn an external reviewer into a trusted confidante and partner. Consequently, firms that could hypothetically develop partnerships and listen to the “influencers of the influencers” and involve them in their day-to-day activities would have the makings of a pretty powerful—and more importantly, inimitable—competitive advantage on their hands.

One other idea spurred by the Slate article…Slate mentions that although reviewers for each of these journals are usually correct in assessing the response that mainstream customers and editors will have to the books they’re advance reviewing. However, in some cases, the reviewers get it dramatically wrong—here’s a humorous outtake from Slate detailing how Kirkus was way off the mark with one of our favorite books, Dave Egger’s A Heartbreaking Work of Staggering Genius: “It isn’t.” According to Slate:

Though the review allowed that the book “is better than most novel-like objects created by our younger writers,” it nevertheless concluded: “Few readers will be satisfied…for their investment of time and good will.”

Given that we can track reviewers and book sales of each book, it would also be possible for publishers to establish a rating system that tracked how correct each reviewer was, and therefore, how tapped into the zeitgeist they are. Combining this data—sales and reviewer attitude—could provide publishers for a tool that could help them determine which reviewers at which publication to concentrate on most in their efforts to win sales.

Posted by Matt Percy | Permalink | Comments (0) | TrackBack

CosmoGirl Bible

This month Thomas Nelson, Inc. launched Revolve, a New Testament for the teeny-bopper set. Thomas Nelson has profited greatly from leveraging customer segmentation into valuable, niche editions of the Bible. Revolve is their latest execution of this strategy.
Although the success of Revolve is less than certain, its publication is a clear sign of things to come for the hyper-traditional world of religious trade publishing. No longer will the assumption that one product fits all be the status quo. Look for successful religious publishers of the future to take a page from the sci-fi/apocalyptic Left Behind series and combine it with elements of the successful cross-over Christian rockers Creed and P.O.D.. In the new world of blogging, self-publishing, McSweeney's, pdf's, book-rings, digital video and audible.com, leading publishers will no longer be "printers with an ability to leverage relationships at Barnes & Noble". Leading publishers will be "savvy media marketing companies with an unparalleled understanding of American popular culture--and their place in it".
In the end of the day, religious publishers have to realize that they are not competing for "shelf space", they are competing for TIME. And for Americans to even consider sharing their limited time with you, you have to be RELEVANT to them. It is a lesson that the institutional churches have failed to learn. However, while the traditional religious institutions rush into irrelevance and fewer Americans park themselves in the pews each Sunday, a void of opportunity opens for the religious media companies of the future.
The jury is still out on Revolve, and it is by no means a sure thing. In fact, the mainstream media (ABC News and the New York Post) as well as the "culture police" (Gothamist.com & metafilter.com) may have already doomed the publication. However, the fact that Revolve was even "newsworthy" hints at the potential for "relevant religious content" in the USA.
In the future, the success of religious media companies in the US will need to be less about following convention and more about creating movements akin to WWJD. What's next? Christian "flash mobs"? They are certainly a posibility.

Posted by Bradley Peacock | Permalink | Comments (1)