Driving Miss Daisy in her AMG

This week I had afternoon coffee with a CEO at the Woodside Bakery Cafe. Woodside, with a population 5,352, is home to several Silicon Valley executives, some of whom host fund-raising dinners for U.S. presidential candidates.  After, when I returned to my car, I found this card stuck in the driver's side window.

 

Curious, I held onto the card, and called the number the next day.  I spoke to the owner, Crhis Turner.

 

The Offering

How many of us can really justify having a full-time chauffeur living in the guest bedroom - even if you live in Woodside?  In this economy, it turns out, very few.

Also, who enjoys stepping into one of those dime-a-dozen black Lincoln Towncars airport cars - or, worse, riding in a gaudy stretch Hummer or Escalade, its interior glowing with color-shifting mood lighting?  Certainly, not those who are accustomed to better.

Those who have achieved success and now drive that sleek Mercedes Benz AMG S65 or Maserati Quattroporte, have an option: driver-only for hire.  The residents of Silicon Valley’s tony communities can travel to the opera in the comfort of their own sedan, confident that some 20-year old valet will not be taking it for a joy ride (a la Ferris Bueller’s Day Off).

It’s a nice offering: licensed and bonded chauffeurs who live in your area, arrive early to familiar themselves with your vehicle, get you where you want to go and back, and ensure that no one of thing touches your $200,000 worth of European-crafted sheet metal while you’re off enjoying the good life.  

And, speaking of the good life, you get to enjoy it with the peace of mind.  You don’t have to hail a cab, leave your vehicle unattended in some public parking lot overnight - and you have zero chance of getting a DUI.

But best of all, I liked the first line of the copy:

Gratuities are most easily handled with 15% on the bill.

No wondering what’s appropriate, no embarrassment getting it wrong.  And because it’s likely only you (and perhaps another) traveling home, no worries that “For parties of 6 or more, 20% gratuity is automatically added to the bill.”

Business is good.  It’s been around for 20 years, has over a dozen drivers, and need only advertise every 2-3 years to clients who move out of state or die.

 

What about those evenings when you haven’t made chauffeur arrangements, and find yourself unfit to get behind the wheel?  This company can’t help - but there are outfits that can.  Make the call, wait in the lounge (or under the table), and a driver will soon arrive on a fold-up scooter.  He’ll put you in your vehicle, put the fold-up scooter in its trunk, and drive you home where he’ll be met by another driver who will pick him and his scooter up.

Expensive?  You don’t want to know.  But for those who can afford to drive the world’s finest automobiles, a few hundred dollars shouldn't be a problem.

 

Facebook Still Smiling ... for Now

In a just-released forecast, Facebook ad revenues for 2011 are expected to reach $3.8 billion - a modest drop from the $4.05 billion expected at the start of the year.  Ad revenue is still on track to hit $7 billion in 2013.

Two factors are difficult to assess looking forward.

Competition

First, is the impact of competition from Twitter and LinkedIn (which should be modest as they are not direct competitors) and Google + (which is).  

As of September 20, Google + has been opened up to anyone over the age of 18 to join.  Google has rolled out this introduction in stages to work out the kinks.  In the next stage, teens 13 and older will be able to have a Google + account.  During that 90 days since G+ was launched, Facebook has made 71 changes to its site - a sign that it is not going to permit its chief rival much headway.

Behavior

Second, is the most significant factor of all - adoption by users and advertisers.  That social media as a promotional platform is eating into the revenue of conventional - as well as other online - media, is a given.  What no one really knows for certain is the extent to which users will respond to online ads in their social media spaces.  This, in return, will determine the rate at which advertisers shift their media spend to social networks.

Chicken-and-egg

Will increased advertising accelerate consumer change, or will consumer response drive the change in advertising habits?  Advertisers are beginning to do some bold and creative experiments on social networks to see just what catches on, and if it can be repeated.  Users will vote with their mouse-clicks.

As this economy shows sign of only slow recovery, 2012 could be a year in which a few agencies double-down on social network campaigns, and find some things that really work.

The Netflix Dilemma

The management of Netflix is making one gaffe after another - the most recent one coming with Reid Hastings’ announcement on Monday that the company is being split in two.  Netflix will handle all streaming content, while Qwikster will handle the fading DVD-by-mail business.

I first blogged in July about Netflix’ price increase that had customers up in arms, and then just last week when the company announced that it would lose 1 million subscribers this quarter.  The customer outcry from the July pricing announcement, however, pales in comparison to customer reaction yesterday.

Over 20,000 followers of San Francisco broadcaster KRON logged into Facebook to comment on Netflix/Qwikster.  The majority of comments expressed anger and outrage.  Then, there were the more reasoned criticisms, like those on Mashable and Entertainment Weekly.  

Reid Hastings’ YouTube apology is not cutting it.  Customers - not all of them, but enough of them to create a real headache - are feeling like they’ve been fleeced.

Clayton Christensen’s book, The Innovator’s Dilemma, postulates that otherwise good companies can falter when disruptive technologies emerge.  They place too great an emphasis on satisfying customers’ current needs, rather than helping their customers adapt to the new technology.

Netflix management is likely quite familiar with Christensen’s work - too bad they didn’t interpret his advice as it was intended.  The company is in a real bind.  It cannot retreat.  Yet, its moves to guide customers along the streaming pathway seem only to serve to disenfranchise many of the loyal ones.

Messier times lie ahead for Netflix.  If there’s a bright lining to this cloud, then it is in the offices of Google, Apple and Amazon.

Kiwis on the March

Friday evening I attended a mixer at the Kiwi Landing Pad on Harrison, in San Francisco. It’s a home base of sorts for New Zealand tech businesses to enter the U.S. market.

I arrived 30 minutes late, only to find that the 70 or so gathered already had either a bottle of beer or glass of wine on the go - typical Kiwi style.

The Right Honorable Mike Moore, New Zealand’s Ambassador to the U.S. gave an interesting 20-minute talk.  A few takeaways stuck out for me:

• At a population of only 4 million - less than the Bay Area - New Zealand does not have a loud commercial voice.  But they know this, and very cleverly have spent the past 50 years both aligning themselves with larger APAC countries, and strengthening ties with the U.S.
• Where, only a couple of decades ago, perhaps 4 U.S. business leaders would attend a major NZ-sponsored commercial briefing event, that number now reaches 50.
• The government brings serious funding to support export of its technology base, and to help its domestic firms enter foreign markets - especially the U.S.
• With the increase of American travel to New Zealand, coupled (until recently) with a very favorable exchange rate, many thousands of Americans have purchased vacation properties in New Zealand, and expanded commercial networks as a result.
• New Zealand has a strong international association with mountains (where Lord of the Rings was filmed), sailing, and sheep.  It has tended to live in the shadow of Australia.  The country’s politicians (a pragmatic lot) are quite determined to shift that perception, and will likely sponsor an extensive marketing effort along the lines of ‘the NZ you probably don’t know.”

New Zealand is a wonderful little country that I’ve visited several times.  Though small, it has progressed substantially in the almost 25 years since I first visited it.  Kiwis very much have this “little engine that could” feistiness, and a very optimistic outlook on their affairs.

My betting is that the NZ dollar will continue its appreciation against the U.S. dollar during the next 6 - 10 years.  Small and feisty make for an interesting combination.

Welcome to Manland

This month, IKEA Australia launched Manland, and is testing it in its Sydney store.  The concept is simple: it is an in-store man cave where men can hang out while their wives an girlfriends shop.

KCBS San Francisco interviewed a professor of marketing and psychology (didn’t catch her name, or the affiliated university) who had data and anecdotes galore for listeners.  Two of the interesting tidbits of research studies mentioned were these - neither of which is surprising.

• Women prefer to browse, shopping not only for what they want, but also to see what else is in the market that might stimulate their interest.  Men, however, typically shop with a clear objective in mind: they park, find what they want, then get out of Dodge.
• On a scale that measures shopping enjoyment, 80% of women either enjoy - or greatly enjoy - shopping.  The corresponding figure for men: 30%.

My wife only occasionally reads my blogs.  I am keeping my fingers crossed that she trips across this one.

Netflix and the Lessons of Price Elasticity

Following Netflix’s announcement in late July of price increases of up to 60%, I blogged about the situation, offering some recommendations.  Well, I don’t think anyone at Netflix read it or, if someone did, my advice certainly went unheeded.

To refresh memories, Netflix was besieged by a torrent of customer and analyst criticism resulting from its announcement of price increases.  CEO Reid Hastings publicly offered that “We feel bad about having our customers upset with us”, later adding, “We’re feeling great about the decision, tough as it is.”

Somehow I doubt that Netflix management - and its shareholders, in particular - were feeling in a heady mood on Thursday.

Less than two 2 weeks after the price increase took effect, Netflix was forced to alter its prediction that it would grow its subscription base to 25 million by September-end.  Now, management is forecasting a drop of 1 million subscribers worldwide - 4% of its subscription base.  The market, which has been skittish to say the least the past two months, tanked the stock, selling off to a one-day decline of 18.9% of its value.

Price Elasticity Takes no Prisoners

It is generally true that, over a reasonable range, changes in price have a proportionately small effect on quantities sold.  In other words, even though a price increase will see some customers abandon the offering, total revenue will still be higher than it was at the lower price.

The price elasticity of demand for Netflix services probably is inelastic - just not as much as inelastic as management had assumed, though.  That, I’d wager, is leading to some sleepless nights in Los Gatos.

Then there is the matter of Customer Lifetime Value (CLV) - one of the key attractions of the subscription pricing model.  With a churn rate of 4% of customers lost in just one quarter (who’s to know what it will be next quarter) it’s very unlikely that departing customers have sworn off streaming video.  They’ll take their business elsewhere.

What Will Netflix do in 4Q2011?

In the final calendar quarter of 2011, a safe bet is that Netflix management will have its eyes fixated on that churn rate - and new subscription acquisition, too.  If the churn does not level off soon, it’s also a good bet that Netflix will have to quickly come up with something attractive for the fat old man who comes down the chimney to put in his bag.  For subscribers.  And for shareholders, too.

The Importance of Luck

For a long time now I have tried to write the best I can.  Sometimes I have good luck and write better than I can.

- Ernest Hemingway

Luck has a good deal to do with success in business.  Not superstitious luck, as found in baseball rituals, but luck as chance, accident and coincidence.

Though the objective of golf is to get the ball in each hole in as few strokes as possible, a hole-in-one yields jubilant dismay.

Experience has taught us that the farther we are away from the hole, the odds of sinking the ball get exponentially smaller.  Too many things have to go right, all at the same time.

Though some of these things are within our control, the smallest variations in body position, muscle firing, angle of the club face to the ball, geometry of the swing increase the likelihood of a missing the mark.  Distance magnifies the slightest error.

Then there are the things beyond our control.  Temperature, humidity, and air currents all seemingly conspire to thwart our best efforts.  Even if we could make instantaneous physical adjustments as we swing the club, conditions can change as the ball takes flight.

So, we bring our skill and experience together at one moment, make our best guess to adjust for conditions, go for it, and hope for the best. 

It is no different in business planning.

By the time the final version of the plan has been written and approved, its shelf life is already nearing the stale date - if not past it.  Most of the decisions that underpin the plan - things we’d like to be sure of - are unknowable.  We know what they’re likely to be over a range, but we can’t pinpoint them.

So, we bring collective managerial experience and know-how to bear.

Assumptions, representing the best, rational outlook we can assemble on future conditions and the uncontrollable forces in the market, are laid out.  “What-if” scenarios are drawn up and scrutinized.  Sensitivity analysis is performed.

When we are sufficiently satisfied that we have applied our skill, knowledge and resources as best we can, we tee up the ball and take a swing.  Our competitors likewise take their swing - it’s no easier for them, either.

Most times, the result will be “acceptable”.  Even with experience, though, sometimes we’ll hit a poor shot.  Yet, occasionally, everything come together magically, and the ball stops inches from the cup - and once in a great while may land inside it.

Sun Microsystems had the E10K server (acquired from SGI when it was unable to purchase all of the assets of Cray Computer) and Java (originally intended for TV set-top boxes).  Apple had the iPod (sorry, Sony Walkman) then parlayed that into the iPhone and now the iPad.  Likewise, Google and Facebook have turned promising products into game-changing, paradigm-shifting, runaway successes.

Each of these companies wanted - and planned for - their product to succeed.  But none of them counted on the results that were achieved.

How did they get everything right?  How do they repeat it?

As in golf, there are many things that must go right, all at the same time - more than can be reasonably managed.  But, we do get better at understanding - and hence, managing - a few of those things.

Malcolm Gladwell’s excellent book, The Tipping Point, offers numerous examples of luck lending a helping hand.  He puts a face on some of the forces that create luck, too.  So does Chris Anderson’s The Long Tail, which illustrates how the internet, social networks and viral marketing have led to unexpected good fortune for those products that don’t make the best-seller list.

Good companies become students of those factors that could swing the advantage to their side.  They experiment.  They try.  They take risk.  They find something that works.  Then they practice, practice, practice.  Until they get it right.

Luck typically favors persistence and diligence.  Those who stay in the game, pick themselves up by the bootstraps when things fail, and who keep swinging until they get it right are usually the ones whom luck favors.