Disappointing News from Both Sides of Business

Amazon logoCaterpillar logoTwo announcements this week from opposite ends of the economy prove how challenged the business environment continues to be. On the “old industry” front, Caterpillar has announced that it will be permanently cutting ~2,500 employees from its operations.

At the same time, a few hundred hourly workers are being called back by Caterpillar to select factories that manufacture certain types of road construction equipment. That softened the blow a bit, but the overall message is clear: Despite the expected growth in infrastructure projects, the stimulus legislation isn’t having much if any “ripple” effect on related or ancillary business segments.

On the other end of the scale is the über-hip, “new economy” Amazon – an enterprise that has achieved so much success selling products of all kinds online. But Amazon seems to have laid an egg in one product category: selling fine wines. After spending several years attempting to organize a mail-order business around wine products – even with the enthusiastic cooperation of boutique wineries all across the country – Amazon has had to throw in the towel on this enterprise.

The hurdles that turned out to be so insurmountable? Everything from the logistics of shipping products that must be delivered directly to the recipients’ hands to avoid problems with perishability … to the Byzantine state laws that regulate the shipment of wine across state lines. (Taken as a whole, those laws are probably more complicated than the provisions of the health care insurance reform bills being debated on Capitol Hill!)

In the end, even the vaunted Amazon – so used to success in practically everything it undertakes – has had to give up on trying to sort through the myriad governmental laws and regulations along with the challenges of wine shipping and delivery, while also turning a profit on the enterprise.

Incidentally, this isn’t the first time Amazon has gotten burned in this business. Back in the late 1990s, the company sank ~$30 million into an ill-fated venture with Wineshopper.com that likewise came to nothing. I guess when your company is made up of mostly twenty-something-aged workers, the institutional memory is pretty short!

Sour grapes, anyone?

e-Books on the March

The Nook e-Reader, released by Barnes & Noble just in time for the holiday shopping season.
The Nook e-Reader, released by Barnes & Noble just in time for the holiday shopping season.
The e-book revolution continues apace. In the past week, Barnes & Noble announced the introduction of its own electronic book reader – the Nook – to compete against Amazon’s Kindle and Sony’s e-reader. Amazon promptly responded by lowering the price of the Kindle to match Barnes & Nobles’ Nook e-reader price. No doubt, both companies are looking to the holiday season, hoping their products will turn out to be among the few that are “stars” in what will otherwise be a season of tepid merchandise sales.

And now Google has gotten into the fray as well. It has announced new details on the pending launch of its e-bookstore, Google Editions. This is an online bookstore that will deliver digital books to any digital device such as e-readers, laptops and cellphones. Google plans to offer up to 600,000 book titles during the first half of 2010 alone, nearly matching the number of volumes that Barnes & Nobles will be offering with the Nook.

True to form, Google seems bent on taking an idea that is gained acceptance in the market – and then scrambling the deck to create a new set of game rules. In this case, it’s attempting an end-run around Amazon’s and Barnes & Nobles’ proprietary e-reader devices by offering the ability to download books to any digital device.

Google’s hope is that e-readers will eventually lose their luster once books are available for download to any device. But Forrester Research is estimating that ~3 million e-readers will be sold in 2009 — ~1 million higher than its earlier estimate. And some observers think that Google may be underestimating the importance and value of the proprietary e-readers; they note that Kindle users have been highly satisfied with the product and how it performs. (Besides, the audience for reading entire books on a cellphone device is probably pretty limited!)

In Google’s program, publishers will set the price of books, while Google will earn over half of the profits and share them with its retail partners. But there is an aspect of Google Editions that might turn out to be a significant “negative” for at least some users. Google is toying with the idea of including AdWords or AdSense advertising in its book offerings. Cramming a bunch of advertising surrounding the book contents could be a big turnoff. Even having blue-highlighted links in the text — while normal and expected when reading an online article such as this NonesNotes blog post – could be a major distraction when plowing through the contents of an entire book volume.

Regardless of how things play out, it’s clear that the ~$150 million e-book segment is going nowhere but up in the coming years, and it will be interesting to see how each of the key industry players ends up faring in the coming months. (And the story line gets even juicier with reports that Apple is also nosing around this market and may have something important to unveil before long.)

What are the very latest trends in media usage?

TargetCast TCM logoWith all of the rapid changes occurring in the media world today, it’s hard to know just what kind of impact they’re having on the media usage patterns of consumers. Now a just-released report by TargetCast Total Communications Media based on a September ’09 survey of ~900 American adults age 18-64 is providing some interesting clues as to what’s going on out there.

The report provides a host of interesting statistical figures, but I find a couple broad conclusions from the report more interesting:

 Men and women are consuming media differently. Men are more likely to adapt their usage habits to incorporate more digital and online platforms, while women are more apt to stick with traditional media forms.

 Radio, which surprised many by successfully surviving the challenges of broadcast TV in the 1940s, cable in the 1970s and the Internet in the 1990s, may finally have met its match. As a “passive” media, it’s being tuned out in large degree by a younger generation of people far more attracted to programmable MP3 players, iPods and interactive multimedia devices.

 Newspapers continue to be respected for their role in covering major news events, but they’re losing ground in the face of increasing digital and mobile news media use. What’s more, nearly three-fourths of the respondents in the survey expect their online news to be available for free. (Rupert Murdoch, are you listening?)

So overall, what media has become less popular with consumers? Answer: Newspapers and magazines, with around one-third of the TargetCast TCM survey respondents indicating they’re using these media less than one year ago. Conversely, ~40% reported higher usage of the Internet for informational purposes … and ~28% higher Internet usage for entertainment.

These findings help explain why print magazine advertising is still in the doldrums. In fact, Media Industry Newsletter reports that November 2009 ad pages are down nearly 20% from November 2008. This comes as a surprise for some people because the full brunt of the economic crisis had already hit the media by November of last year. But instead of showing flat performance or maybe even a slight rise in ad pages, the numbers tanked yet again this year – making the two-year drop-off between 2007 and 2009 a whopping 35%.

Sure, some of the blame for the sorry ad numbers can go to the continuing economic downturn. But the rest is due to the fundamental change in media consumption habits that are continuing to happen – as cleanly illustrated in the TargetCast TCM report.

Next on Wal-Mart’s Low-Price Hit List: Cell Phone Service

Wal-Mart logoIf you’re like many people, your monthly cell phone bill has been creeping higher and higher over time. The addition of second and third lines, family plans, text and data messaging has provided big leaps in functionality at the cost of just modest additional fees … but those fees do add up.

Today, just in time for the recession, the average monthly cell phone bill for Americans, at nearly $80, is as high as it’s ever been. So it’s no wonder that new suppliers have been nosing around this market for awhile now, including those offering VoIP phone services over the web at a fraction of the cost.

And now Wal-Mart has gotten into the fray. On course to become the low-price leader in seemingly every imaginable consumer product and service, Wal-Mart has decided to roll out a new wireless cell phone service called Straight Talk.

Instead of the plethora of “complicated, convoluted and confusing” contracts that seem to be so common in the industry, Wal-Mart’s Straight Talk is offering just two plans – and neither of them requires a signed contract.

One plan offers unlimited minutes, texting and mobile web user for $45 per month. A cheaper, $30 monthly plan allows for 1,000 voice minutes, 1,000 text messages and 30 megabytes of web usage. Consumers may refill their monthly balances by buying refill cards at Wal-Mart stores or by registering online.

And what about those irritating “add on” charges that always seem to add $10 or $15 extra to your monthly bill? Wal-Mart’s aiming to limit those as well. For example, 411 directory assistance calls are free.

A pilot program, conducted this summer partnership with TracFone Wireless at 234 stores, was so successful that Wal-Mart has decided to introduce the program nationally in time for the holiday shopping season. In fact, the rollout begins this week at 3,200 Wal-Mart stores across the country. Wal-Mart is promoting the service as one that will save consumers ~$500 a year.

Considering how cost-conscious people are at the present time, the promise of savings like that are enough to encourage even those families saddled with early termination penalty clauses in their service contracts to ditch their current suppliers.

Here’s a prediction: It won’t be long before Verizon and AT&T begin to offer similarly discounted and/or no-contract services to their customers. Now, if only they had done so before … they might actually have higher customer satisfaction scores than their current mediocre (or worse) ratings.

Social Media and the Internet: Click … or Clique?

All of the hype about social marketing and social media might make you believe that people are flocking to this new form of communications in droves.

Well, if you think this … you’re right. And now we have the stats to prove it. The Nielsen Company has just released web statistics for the month of August that report that time spent on social networks and blogging sites accounted for ~17% of all time spent on the Internet.

Compared to August 2008, this figure is nearly triple the percentage of time spent on social networks and blogging sites just one short year ago. Seeing as how there is an upper-limit ceiling on the total amount of time available to spend online in any given day, the increased attention on social media is coming at the expense of the more traditional use of the web as an informational tool.

This is not to say that text and video content don’t remain central to the online experience, because that is clearly the case. But the ability consumers have now to use platforms like Facebook and blogging sites to “connect, communicate and share” is what’s driving much of the continuing growth of the web and online engagement.

Because of this new emphasis, is it any wonder more online advertising dollars are chasing social media than ever before? Nielsen pegs advertising on social media sites as representing ~15% of total online ad spending in August 2009. That’s more than double its proportion a year earlier.

Along with the shift in online ad revenues to social media sites, we’re also experiencing a major change in clickthrough behavior as it pertains to online display ads. Research published recently by comScore shows that the percentage of people who clicked on one or more display ads during a monthly period of Internet interaction – in this case March 2009 – was only ~16%.

How does that result compare with earlier surveys? It’s dramatically lower, and dropping. Just two years ago in 2007, ~32% of people online clicked on at least one online display ad over a month-long period – twice the proportion as today.

What’s more, the comScore analysis reveals that a very small portion of viewers represent the vast majority of the clickthrough activity. Specifically, only ~8% of the people are responsible for ~85% of all clicks. Of course, we can be sure that the robust clickthrough behavior of these 8% translates into equally robust product sales … NOT!

Clearly, any company that is attempting to promote products and services over the Internet needs to carefully study the composition of its market and the behavior of its online audience targets before making extensive online advertising program commitments.

The reality is, with the dynamics we’re seeing such as the behaviors noted above, it’s more likely an online promo effort will fail rather than succeed unless a dispassionate review of the situation is done beforehand and a practical, realistic program put into place.

But that’s so unlike many of the web advertising programs we’ve seen implemented up to now, which could be best characterized as: “Throw a bunch of advertising at the web and hope some of it sticks.”

Condé-Nast Gets Real – and Reality Bites

Conde-Nast logoThis week, magazine publisher Condé-Nast announced the closure of four magazines, including two bridal publications plus the prestigious and well-known Gourmet Magazine title.

It’s an indignity for a publishing firm that has fallen pretty far pretty fast. For years, the company seemed by-and-large unaffected by the winds of change in the publishing industry. Even as other firms were belt-tightening and divesting themselves of low-performing magazine titles, the storied “in-your-face” Condé-Nast business style – replete with jet-setting executives and seemingly endless clothing and expense accounts – appeared to remain intact.

It didn’t hurt that parent company, Advance Publications, also owns cable TV properties that could help prop up the print publication segment of the business – at least for a time.

But with plunging ad page revenues from its luxury goods advertisers on the order of 30%+ throughout 2009, it was only a matter of time before the day of reckoning would arrive. And the sense of impending doom was only heightened when McKinsey & Co. consultants started roaming the halls, poking around the company’s headquarters like a nosy relative, asking all sorts of questions and taking notes.

And now, a few short months later, we have this announcement.

Accompanying the news of magazine closures and personnel layoffs, Condé-Nast reported that it is shifting its priorities to digital properties even while focusing on a fewer number of “core” magazine titles.

Will it be enough? One unnamed company executive was quoted in The Wall Street Journal as saying, “We’re going to make a go of everything else.” But I think that’s doubtful. McKinsey has recommended that nearly all of the remaining publications cut their budgets by upwards of 25%. Whether or not that happens – or whether it will be enough to save the remaining titles – is something we’ll be able to judge pretty quickly.

UPDATE (11/7/09)The New York Post is reporting that Condé-Nast has now hired Michael Sheehan, the famous crisis manager and media coach, to help the company with PR. Sheehan has coached presidential candidates from Clinton to Obama, as well as handling AIG Insurance’s PR during its financial meltdown in late 2008. Reportedly, Gina Sanders, publisher of Lucky magazine, prodded top brass to bring Sheehan in, citing deep morale problems at the company. Considering the dramatic events at the publishing house over the past year, this news is not at all surprising.

The Movie Rental Business: Blockbuster … or Blockbusted?

Blockbuster logoWhat’s going on with Blockbuster? For several years now, business analysts have wondered whether the company’s movie rental stores could withstand the competitive pressures from alternative delivery systems such as Netflix’s monthly subscription program, or the growing popularity of movie downloads direct to the customer’s own computer.

The latest announcement by Blockbuster’s management seems to suggest that we may be entering into an endgame phase for the company. Blockbuster reported that it will be closing as many as 40% of its stores over the next two years. This figure – nearly 1,600 of its ~3,750 total store population, is significantly higher than had been signaled by the firm earlier in the summer.

Blockbuster seems to be caught in a situation where its business model is no longer attractive – or even relevant – to a large and growing chunk of movie consumers. The company has nicely appointed, well-stocked stores scattered all across the United States. But these outlets are an expensive way to rent movies when compared to Netflix’s “movies by mail” program or Coinstar/Redbox’s $1 movie vending machine kiosks. The Blockbuster stores are losing money – and customers.

Come to think of it, Blockbuster has been playing catch-up ball in the movie rental game for quite some time. When Netflix introduced the idea of “no late fees – ever,” Blockbuster resisted following suit for a time … until it became clear that charging late fees was becoming a deal-breaker for many consumers. And with the end of late fees, a major source of revenue and profits dried up.

Blockbuster has also tried to compete with Redbox, but the latter is expected to have nearly ten times more kiosks than Blockbuster (~20,000 versus ~2,500) installed by the end of this year.

Blockbuster has even tried to compete with Netflix by introducing its own monthly mail-order subscription program. But that program, which had grown to ~3 million customers, sank back to ~1.6 million once its aggressive promotional program for the service had run its course.

And then there’s the direct download business – the proverbial “elephant in the room” that is a threat not only to the Blockbuster model, but also to aspects of Netflix and Redbox’s business as well. Blockbuster is taking a stab at this segment of the business by working out a phone-download program with Motorola plus a TV-download program with Samsung, but it’s not clear at all that these efforts will help preserve Blockbuster’s market dominance.

Looking at the current volume of business done by Blockbuster compared to its competitors, the casual observer might think that the company has nothing at all to worry about. After all, its customer base numbers more than 50 million compared to just shy of 11 million for Netflix. But these point-in-time figures belie the fundamental problems facing the company. Blockbuster – the lumbering ocean liner – is losing upwards of $40 million each quarter, while its rivals – the swiftly maneuvering speedboats – are making profits.

Wonder how much longer that can go on?

Who are ‘Wikipedians’ … and what makes them tick?

Wikipedia logoBy now, most web surfers have had first-hand experience with Wikipedia, the online encyclopedia to which anyone can contribute. As a quick resource for gaining knowledge, it’s hard to beat; it’s fast,and it’s comprehensive.

Speaking personally, fewer than 10% of my queries on Wikipedia come back empty. So I find it a great resource for getting a quick handle on most any topic.

Of course, it would be unwise to consider Wikipedia an unimpeachable resource because its content is not vetted in the traditional way. Volunteers author the articles, and it’s up to the community of Wikipedia readers to call out and correct errors or omissions to the entries.

Just who are these volunteers, and what motivates them to devote time to Wikipedia? As it turns out, while there’s no pay, there’s a strong mixture of altruism and ego gratification associated with being a Wikipedia contributor.

This is borne out in an international research survey conducted jointly by the Wikimedia Foundation (the not-for-profit group that operates Wikipedia) and United Nations University’s MERIT tech research project. A whopping 175,000 responses were collected. Of these, approximately one third reported that they contribute Wikipedia content in addition to consuming it.

So what makes those people want to become a Wikipedia contributor? Three-fourths of them agreed with the statement that they “like the idea of sharing knowledge and want to contribute to it.” Two-thirds also reported that they “saw an error I wanted to fix.” Nearly half would contribute more often “if I knew there were specific topic areas that needed my help.”

The survey also uncovered some fascinating demographic statistics regarding Wikipedia contributors. It comes as no real surprise that the median age of Wikipedia contributors is in the mid- to upper-twenties … or that one-fourth of them have post-graduate degrees.

But the gender breakdown is curious. In fact, the survey found that only 13% of Wikipedia contributors are women – a startling finding. And even among those who have edited others’ entries rather than contributing full articles of their own, only 31% are women. The researchers steered clear of suggesting any reasons for the gender skew, which was more than likely a cop-out.

And what are the reasons why people don’t contribute to Wikipedia? Predictably, “time constraints” were cited by many respondents. Another factor cited was not knowing how to create or edit the Wikipedia pages. But a substantial percentage (~25%) cited being fearful of making a mistake and “getting in trouble” for it.

So one takeaway from the survey is that it takes certain traits to be a Wikipedia contributor — like being a self-proclaimed “informed expert” looking for validation, affirmation and recognition … or even being narcissistic?

Come to think of it, perhaps it’s not so surprising after all that Wikipedia contributors are over 85% male!

Farewell to an Audio Hi-Fi Pioneer

1812 Overture

Wilma Cozart Fine, audio Hi-Fi pioneer, operating the controls at Mercury's classical record division in the 1950s.
Wilma Cozart Fine, audio Hi-Fi pioneer, operating the controls at Mercury's classical record division in the 1950s.
This past week, the world lost a legend in the audio recording field with the death of Wilma Cozart Fine, age 82. The name may not be familiar to many. But if you grew up in the 1960s or 1970s, chances are your family owned at least one of the recordings Ms. Fine produced for the Mercury label – perhaps the 1812 Overture sonic blockbuster featuring the Minneapolis Symphony Orchestra (and also featuring real cannons and bells) that would become the first classical album to sell more than one million copies.

A native Mississippian who grew up in Ft. Worth, Texas, Wilma Cozart graduated with college degrees in Music and Business, then went to work in the late 1940s for the newly reorganized Dallas Symphony as personal secretary to the orchestra’s new music director, the fiery Hungarian conductor Antal Dorati. The Dallas Symphony managed to secure a recording contract with RCA Victor – highly unusual for such a young ensemble – and proceeded to release a number of praised recordings including the Bela Bartok Violin Concerto #2 with Yehudi Menuhin.

When Dorati took up a new position as music director of the Minneapolis Symphony Orchestra, Cozart decamped to there as well. Shortly thereafter, she was retained by Mercury Records in New York City to manage the label’s newly formed classical record division.

Using her orchestra management acumen, Cozart, all of 24 years old, snagged a recording contract for Mercury with the lauded Chicago Symphony Orchestra – the first of several exclusive contracts she would negotiate with orchestras in Minneapolis, Detroit and Rochester.

The debut classical recording produced by Mercury’s sound engineers led by C. Robert Fine was Mussorgsky’s Pictures at an Exhibition, and it caused a sensation in the music world when it was released in 1951. It was widely praised as the best-sounding classical recording made up to that time, with the New York Times reporting that the realism and clarity of the recording made it seem as if the listener was “in the living presence of the performers.” Sensing the marketing power of this description, Cozart would adopt the “Living Presence” moniker for the entire Mercury classical catalog.

The secret to making the Mercury classical records was simple in concept yet quite challenging to implement: A single microphone was painstakingly tested for positioning in the auditorium above and in front of the orchestra at the precise location where the sound would “bloom” most naturally. (Later, when stereophonic disks were introduced, three microphones would be used during recording and then mixed down to two channels.)

Cozart, who married Robert Fine in 1958, learned the craft (and art) of record production from the ground up. In the end, she and her team would release several hundred Mercury classical recordings before the label was acquired by Dutch-based Philips.

It is difficult to cite another instance in which a classical record producer such as Ms. Fine has had such a positive impact on the reputations of the conductors and performers being recorded. Indeed, the enduring popularity of conductors like Antal Dorati, Paul Paray, and Frederick Fennell and his Eastman Wind Ensemble would not be nearly as potent without the documentation of their art as taken down by Fine and her production team.

As the years have ticked by – with new technical innovations introduced and thousands of new classical records produced – the Mercury recordings have retained their reputation as examples of exceptional clarity and realism in sound. For many, these recordings remain the audiophile standard against which all other sound production quality is judged.

But the story doesn’t end there. The pioneering efforts of Ms. Fine would have an interesting “second act” more than three decades later. It was to her that Philips turned in the early 1990s to undertake the endeavor of remastering and transferring nearly the entire Mercury classical catalog to CD. And this was no mere “symbolic” or cameo effort on Fine’s part, either. The original Mercury mixing equipment would be repaired and brought back into production for the project. Ms. Fine performed the digital editing herself – nearly 50 years after she had done it (in analog) the first time around!

And again, the critics swooned.

What is the legacy of Wilma Cozart Fine? It’s not just that she was a pioneer in classical music’s Hi-Fi wave – or that she was the first woman to break into a male-dominated field. It’s that she and her team brought the world some of the best classical recordings ever made …and set a standard for excellence that has yet to be surpassed nearly six decades on.

U.S. Workforce Trends: Revenge of the Gray-Hairs

A new study by the Pew Research Center’s Social & Demographic Trends unit reveals that when it comes to working, U.S. senior citizens aren’t ready to leave the stage. Instead, they’re staying on for encore after encore.

Incredibly, the Pew study forecasts that nearly 95% of the growth of the American labor force over the next eight years will be among workers age 55+.

What’s behind this interesting demographic development – one that has actually been taking shape for some time now? I think it’s three things:

Americans are living longer and staying healthier longer
Most seniors wish to stay active and productive as long as possible
The economic climate

This last factor has been particularly acute with the current recession that has caused the loss of retirement investment balances and real estate values. This is underscored in the Pew survey, where nearly two thirds of workers in their 50s reported that they might need to push back their expected retirement date because of the current economic conditions.

But the Pew study also makes clear that once the recession lifts, it’s highly unlikely that the aging of the workforce will reverse. That’s because many seniors find that working satisfies fundamental social needs like “being with other people” (56%), “feeling useful” (68%), and “giving me something to do” (57%).

By contrast, the other workers surveyed by Pew (ages 16 to 64) see themselves working “to support myself and my family” (88%), “live independently” (78%), and “to qualify for a pension or Social Security” (65%).

All of which proves that as people mature and move through the cycle of life, many of them make a shift in their perspective: “Work to Live” becomes “Live to Work.” For someone just entering the workforce, that might be laughably hard to believe … but the Pew survey results bear it out.

And another takeaway message to younger workers: Don’t expect your older colleagues to exit the scene anytime soon … the competition’s still hot ‘n heavy.