Monthly Archives: November 2008

Black Friday Shopping

I just read an initial report out of ComScore indicating this year’s Friday retail e-commerce numbers were up slightly over last year.  Online, nontravel e-tailer sales grew 1% for the day to $534MM from $531MM last year.  For the month of November, retail e-commerce sales were down 4% from last year’s numbers.  The National Retail Federation, on the other hand, is forecasting an increase of 2.2% for the full Thanksgiving weekend (with only Sunday being an estimate), on total spend of $41 billion and average customer spend up 7% from $372.57 to $347.55. 

All in all, I’d consider the data to be encouraging (relatively speaking).  It seems to me all retailers were very concerned about spend and pushed heavy discounts to the forefront to ensure the holiday season got off to a good start.  It may not bode well for retailer margins, or for the overall health of the industry for that matter, but at least a strategy of heavy discounting did create elasticity and spend with consumers.  It would have been far worse to heavily discount and feel like one was simply pushing on a rope.  People could have easily refused to put any money out this holiday season, and frankly I would have guessed we would see declines in spend.  I’m still not sure I believe the increase in average purchase size.

Walking around, things seemed to be pretty busy.  I put a couple of pictures from Macy’s and the Apple Store in NYC this weekend below.  They were jammed.

Apple Store NYC


The next step is to see whether people have “forward bought” and all retailers have done is rob from tomorrow to get paid today.  I noticed several retailers offering discounts for future period purchases.  For example, at Banana Republic, upon completing a purchase, they offered a card for 20% off any item between December 2 and 22nd.  The goal is clearly to get me back into the shop.  It will be interesting to hear the data come in over the next month.  If anyone has other good anecdotal data, would certainly love to hear it!

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Facebook, Twitter, and the Convergence of Messaging

Lots of chatter about Twitter being offered $500MM by Facebook.  Some think Twitter is crazy not to take it, while many others correctly point out that $500MM is not $500MM if it’s in stock.  While Facebook may hold out the Microsoft $15 billion valuation (an artificial auction given how strategically important the advertising deal was to Microsoft, not to mention that they received preferred stock), my discussions with a number of people tell me Facebook common stock has been trading hands at somewhere between $3 and $4 billion in value.  If you’re Twitter, that’s the difference between owning 3% of Facebook and 12.5%.  That’s a huge difference in ownership when it comes to upside! 

Facebook is an unbelievable social hub, where casual communications amongst friends are mainstay.  Facebook has also been incredibly successful with mobile usage.  There are over 15 million active users of Facebook Mobile, growing over 300% from last year!  By comparison, Twitter “only” has 6 million active users of the product.  If Facebook is the dominant player in casual communications and has an incredibly strong product in the Mobile space, why would it make a “buy” decision versus a “build” one? 

I think Facebook is looking to take advantage of this downturn in the economy to become the largest social network and communications hub out there.  It turned down some huge offers to stay independent.  There’s no turning back now.  Twitter is the poster child “Web 2.0” company – incredible usage, no revenues.  If Facebook could get Twitter for a reasonable price (ie, selling them on a $15 billion valuation), they could clearly capitalize on Twitter’s market momentum.  Pick up a viral service that has got a high degree of overlap with your own users, and use the integrated service to draw everyone else from Facebook onto the service.   Even if they don’t buy Twitter, Facebook must be working on some sort of SMS-based Twitter-like feature.  They might even add a Loopt style service alongside the same platform.   Extrapolating from the chart below, text messaging is a very important communications medium for Facebook’s core audience, and clearly offering a full feature set would rank high in ensuring Facebook’s dialogue with their core audiences. 



Looking at the chart above also provides some hint as to where Facebook might be headed next.  In my mind, the next most obvious place for them to go is email.   While younger kids view email as the “formal” way of communicating with adults, its usage is uniform across age demographics (see below).  And we all know how incredibly sticky email addresses are.  Yahoo! has over 260 million users of its email service, and AOL has long maintained audiences with its legacy email accounts.  Gmail by Google, while growing, is a surprising distant follower.  I’d bet many of the younger users of Facebook would easily use an “@facebook” account, or any separate brand Facebook might come up with, especially if it was appropriately integrated into their social messaging platform.  Facebook might even do something really interesting by providing POP access to its social messages to drive adoption.  Putting aside the details of how Facebook sorts/presents email from chat or social messages, it would seem like a great way to start building an organic presence in email for a huge audience you control.

Other possibilities could be expanding Facebook’s chat platform.  While they have their own internal chat function, why not approach Meebo or eBuddy to acquire their tens of millions of interoperable IM users.  Like Twitter, they likely share attributes of “high usage, light revenues”.  In addition, Facebook could launch a VoIP based voice service that it embeds into their chat platform and their smart phone mobile applications. 

Imagine the converged communications possibilities.  Facebook would have the SMS market cornered via Twitter or its own offering, it could have not only the internal usage of their Chat application but also corner interoperable IM services via acquisition, it could have users starting their sticky email “lives” with the launch of @Facebook/ @nameyourbrand so users can communicate with all those “adults” outside the Facebook ecosystem, it could have applications messaging enabled by the open Facebook platform, and it could have voice (VoIP) services embedded via the web and the downloadable mobile app.  While pure speculation on my part, one can see how the innocent Twitter play could be one small step towards Facebook aggressively trying to converge our messaging platforms.

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Improving Our Infrastructure, One Election Booth At a Time

What a week!  There has been an enormous amount of press coverage, both domestically and internationally, about the implications of Barack Obama as the next President of the United States.  I do not think they can be overstated.  This election is a testament to the ideals of this country and the power of empassioned masses.   While I am a registered Independent, and prefer to keep my politics out of my regular dialogues, the avid traveler in me cannot help but feel great about the universal refrain of support and acknowledgement from every corner of the globe.  I am quite hopeful in a period that only offers bleak challenges.

Amongst many of President Obama’s policies, one that particularly resonated was the call to upgrade and improve our infrastructure.  Obama’s use of technology has been well documented, from his campaigns online to his engagement with Facebook audiences to his mass SMS message to campaign volunteers acknowledging their work before delivering his acceptance speech.  I believe this country has not come close to generating the efficiencies possible by leveraging the latest information technology.  Nowhere was this more evident than at the voting booth where I cast my vote.

On an electrifying Tuesday morning, rather than casting my absentee vote, I walked over to the Prince Georges Hotel on 28th Street in Manhattan to cast my vote in person.  The line rounded the corner, but this was my day to participate in all this country offers.  I waited patiently for an hour before getting inside.  When I entered the hotel, I felt like I had been thrown back centuries.  I was greeted by a woman who had a crumpled up piece of paper with handwritten numbers, which would identify which machine I would stand in line to vote from.   These numbers were misaligned and looked like chicken scratch.  She directed me to the line for “12”. 

The line for “12” overlapped with the lines for “28”, “51”, “13”, and others.  They wound and zigzagged around each other in a swirling mess.  Once I got to the front, I was greeted by a woman who checked my ID and pointed me towards a booth.  The booth itself was enormous.  Twice the size of those usual “Polaroid” photo booths that you would take pictures in as a kid at an amusement park.  Inside this big, old grey piece of metal were columns for the candidates.  Next to the names were manual black knobs.  At the bottom of this machine was a massive (3 foot long) rusted red lever.  I had no idea what I was supposed to do, and still uncertain after reading the three point instruction at the top.   Turns out you have to take this massive lever and push it all the way to the right.  Then you had to turn each manual knob counter clockwise for the candidates you wanted.  And when you were done, you pulled the lever all the way to the left again.  After that, you stood there and hoped something happened.  There was no feedback, no click, no guidance.  I walked out scratching my head, until another woman came over, pulled some other lever in the back to reset the machine for the next person.  It somehow implicitly validated I did something.  Nothing about the registration of my vote was tied in the machine to who I was (ie, did I vote?).  Maybe some manual reconciliation happens afterwards.  And I couldn’t tell how this machine could possibly do anything but offer very high level total calculations via an internal abacus.  All in all, this machine could have easily been built in the era of the Guttenberg press back in the 1400s. 

My tiny experience at the voting booth could have gone radically different, and generated massive savings all around.  The first issue that struck me was the opportunity for human error.  From the first woman and her hand written notes, to the swirling chaotic lines, to the archaic machine, each of these had material >5% chance of errors, especially in light of the volumes of people.  Compounded, it could lead to material errors in votes – the fundamental priviledge of our citizenhood!  Second, there is a huge manual effort that could be entirely eliminated by using a modern booth as available in select other states.  No counting votes, or manually inputting data into computers, it would happen instantaneously.  This could lead to substantive savings if implemented in a standardized manner on a national basis.  Third, while safeguarding the privacy and sanctity of the actual vote, is the opportunity to take the information from these machines to understand and improve our democratic process. 

Technology cannot cure all ails.  It is not magic.  But if used effectively it can transform how we leverage and process information.  This little example is one of an infinite number of inefficiencies that exist within our government.  Even the smallest of focus on these can lead to substantive productivity and cost improvements that can go towards any number of the major issues facing the country.  I am hopeful our new President elect will push the drive to modernizing our state.

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Advertising in 2009

As many of you know, Ad-Tech is in NYC this week.  It’s a great conference that brings together some of the leading traditional and digital thinkers to explore the latest topics affecting the industry.  The timing of this Ad-Tech was particularly interesting given the broader market environment. 

I had the pleasure of being on a panel entitled “The Digital Economy” with David Moore of 24/7, Bob Raciti of GE, Imran Khan of JP Morgan Chase, and moderated by Henry Blodget.  Much of the discussion focused on the state of the online advertising market.  I thought I’d share some of my predictions:

·      2009 will mark a very, very tough year for overall advertising, and I would not be surprised if the total ad market (which exceeds $230 billion) declines by 10% or more.  Mary Meeker had put out an interesting analysis that showed the correlation between GDP and advertising spend at 81%.  Based on that analysis, at a 0% GDP growth rate, one would see a 4% decline in overall advertising.  With a 2% contraction in GDP, one would expect to see 8% decline in advertising.  I believe 10% is a real possibility.

·      There will be a continuing rotation of dollars from legacy advertising markets to online advertising.  The overall online advertising market (which is only $25 billion out of that $230 billion pie) will grow, though at much more muted levels than the 15%+ currently predicted by the market.  More likely is mid single digits overall.  History shows that advertising eventually follows the user, and given how woefully behind ad dollars are to the time spent online, growth should be expected.  This will be offset by declines in the unit pricing, both on a CPM and CPC/A basis.  Clicks or actions won’t matter if the consumer cannot ultimately convert because they don’t have the money.   

·      We will not see the 25% drop that we saw between 2001 -2003, for two reasons:  1) Overinflated tech startups are not buying from other overinflated startups.  Online is mainstream and touches nearly every industry in a meaningful way.  2)  The inventory being offered has evolved from display only many years back to display, search, SEO, email, lead generation, affiliate, etc. 

·      This contraction could put MAJOR pressure on the traditional media players.  In particular, I worry about the newspapers, who still generate over $38 billion in advertising, with content that is often readily available from hundreds of sources, including blogs of which many are viewed as more “authentic” to young readers.  I think we can see some major failures over the next few years.  Those who produce premium content, or content that has a high cost of production, controlled distribution, and long shelf life (eg the networks, film studios, etc) will have to work through their transitional issues and the current tough environment but will survive and thrive online.  

·      Within online advertising, consistent with prior recessions, we will see retrenchment to direct response/performance oriented spending.  Search will grow much faster than display, as people will release dollars only to the extent they are certain they will see them back very shortly. 

·      Other areas of robust growth will include online video and in gaming advertising, as people increase time on leisure entertainment.  Online video will get even more compelling as we get beyond the pre-roll only.  There is such a rich opportunity to make advertising within a video context so much more engaging and real-time.  You can engage the users with calls to action, can make real time “hot lead” phone connections, can offer incentives to induce immediate behavior.  We should watch for some exciting innovations.

We are still early in many aspects of the online revolution.  One of my companies, Conductor, just released a report that showed over 75% of the Fortune 500 have no presence for their keywords and brands in the natural search domain.  Consistency of measurement has continued to prove a challenge to unlocking more spend.  We have plenty of data, just no good idea how to agree on it.  Increasing fragmentation in the sources of online spend in a market where people had enough to do with just TV and newspapers will require much more robust technology for automation.   The whole concept of de-portalization and free flowing content will necessitate a re-writing of all of our Web 1.0 and 2.0 tools.  There is still a lot more innovation needed to move the rest of the $200 billion or so that is not yet online, and so while the short term market looks tough, the long term opportunities remain exciting.

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