Magazines, Parcel Packing and a Bleak Future

The trend concerning the future of newspapers and magazines is even more alarming in the States than it is in Germany. Many magazines have already ceased production, with a few still fighting for their survival (Fortune, Forbes, Business Week).  Yet, their end seems to be inevitable too. The reason is given by the emergence of the internet and the subsequent shift of advertising from print into new media, resulting in a substantial loss of profits for publishing companies. The American market has unfortunately always dictated the trends that have reached continental Europe a few years later. I don't see why this should be any different this time. We will see the end of many established magazines who failed to reduce their costs to a level that would compensate for their losses in revenue caused by the reduction in advertisement. We must be aware that we can't reduce the loss of advertisement revenue to talks about the effect of the credit crisis. Even in an economic boom, advertisement revenue will never return to where it used to be. 

So what are we to make of this dusky and bleak future? We have to understand one fundamental fact. Journalism will continue. It's a process. Publishing simply is the wrapper that you put around it to make this process profitable. Put it another way. Putting books into parcels is a process. Getting orders from people and then shipping those parcels to them at profit - that’s a business. Amazon is the business. Packing books is the process. This process will continue in the same way that journalism will continue; even if Amazon dissapears. Hence what matters is finding the business model that fits this process.  The search for this business model will cause the removal of outdated and antiquated competitors whose strategy was inferior to the lightening pace that technology is moving at. 

Just as natural selection allows only those individuals with the most suitable traits to survive, only magazines with the right business model and strategy will champion the struggle for existence. Just like in nature, inferior competitiors will recklessly be driven out of the market.

So what will ensure the survival of a magazine the future? Many different oppinions exist upon this topic. Yet I believe it is vital to point out one definite trend. At this point I have to give credit to Michael Mendenhall, a managing director at HP, who I had lunch with last wednesday. Mendenhall pointed out to me the effect and significance that people like Paris Hilton or Ann Wintour, chief editor of Vogue, have upon their readers. The persistent success of these characters clearly shows one thing. If you really want to attract and interest people you have to start producing news that are opinionated and arbitrary, and might even contain a slight element of dogmatism. This will define your newspaper or magazine. There is no need to simply repeat news without adding value. Internet or television will always be much quicker in that respect. However, once you have something unique in your magazine, some editor or journalist who looks at something from a completely different perspective, or who portrays a situation in a different light, your provocative and unconventional approach will ensure the attention of your readers. If used thoughtfully, this represents a great advantage that newspapers can have over any form of media. Thus, I believe that that a magazine like FOCUS should dare to touch upon a variety of controversial topics, taking sides where necessary, in order to get a more charismatic image, an image that distinguishes the magazine from other competitors, making it a unique source of information. This in my oppinion, will inevitably increase its chance to survive. 

J

HP and Google - Contrasting Two Philosophies

A definite highlight on my journey so far was the day that I spent visiting HP. I started off by visiting their Executive Briefing Center in Cupertino. The sole purpose of the ECB is to convince big clients to further their cooperation with HP. They do so by demonstrating the newest technological advances and service facilities to the representatives of these huge companies. This strategy has proven to be tremendously succesful, with HP executives claiming that many of their big deals owe a great amount to the convincing power of the ECB; I can only stress the validity of this belief. HP has clearly understood the importance of displaying itself in the best light possible whenever clients show an interest in the services of the company. 

This visit was followed by a tour through HP Labs. Labs is the innovative sector of the company and has been responsible for many of the key inventions that have allowed the company to grow in recent years. Especially the service sector with its great emphasis on data sets has generated a huge amount of money for HP, becoming its greatest source of revenue.

I was very fortunate to have lunch with some of the managing directors at HP, learning a lot about the way that HP approaches the apparent problem of a fall in revenue and the absence of growth.  With the arrival of the new CEO, Mark Hurd, a lot has changed for HP employees. Hurd made his uncompromising course clear since the day he arrived at the company. In order to stay competitive, Hurd argues, we have to cut down on our costs drastically. In order to do so, Hurd has instructed several things. He ordered the removal of many employee benefits such as free donuts on Friday morning or free working hours. Additionally, he has cut down on the space that each worker is given during work (they are actually working in cubes of the size 2 by 3 metres!), leading to a reduction in the cost of working space.

Contrary to expecations, HP has not discovered a substantial loss in the marginal productivity rate of their workers. On the other hand, all these various forms of cost reduction have led to an extra 5 billion Dollars per year, enabling HP to remain hugely profitable.

The message is clear: If you experience a fall in revenues and profits (HP revenue fell by 17 per cent in the last quarter), you have to start to reduce your costs if you are willing to remain in the market. Competition is too big as to allow for any levity in dealing with this issue. 

Hurd famously stated that HP employees are given the choice: Conform to his changes and keep the job, or oppose to these changes and become redundant. 

A completely different philosophy was presented to me when I was kindly given a tour through Google's vast campus in Mountain View.  The company is well known for its revolutionary take on the interaction with its employees, but one really has to visit the campus in order to grasp the real magic of this place. Google's relationship with its employees is unique in a variety of ways. It's the only company in the world that provides its workers with free lunch, breakfast and dinner everyday throughout the week (at an amazingly high quality). Furthermore, the working area is very spacious, and a rule proclaims that a "Googler" should be no further away from food or drinks than 150 feet. Additionally, many leisure and chill areas ensure that the working environment is of an exceptionally high standard. The hierarchy that is evident at a company such as HP is nearly not even existing at Google. Every employee is given the chance to publish an idea; if it is good enough, it has the chance to be implemented: Google Earth, News and Maps all developed out of this concept. At Google, it is not unlikely that an intern would work right next to a managing director. The benefits of Google's concept and philosophy are self explanatory. 

Overall, it must be clear that Google is one of the few companies that can afford to have this very special, yet seemingly costly relationship with its employees.

Consequently, HBM is left with no choice but to follow suit with the HP model. In times of stagnation, one must cut down costs drastically in order to remain profitable. 

J

Offbeat Guides and Holiday Check

On Tuesday I went down to San Francisco to visit Dave Sifry and his Offbeat Guide team.  The San Francisco-based start-up company makes personalized, up-to-date travel guides that cover over 30,000 travel destinations, using a combination of search technology and articles written by both amateur and professional travel experts. In other words, "on-demand travel books, with a touch of humanity–an obvious and even innovative trend as custom printing gets cheaper."

As it stands, a company such as Offbeat Guide seems to be just custom made for a media enterprise such as HBM. Burda Media could launch and promote Offbeat Guide on Holiday Check, by simply including a little check box at the end of every transaction or hotel booking, enabling the customer to order a travel guide together with the journey. The cost for the Travel Guide (10 Dollars), would then simply be split up between Offbeat Guide an Burda Media, resulting in a win win situation for both companies involved. However, it must be remarked at this point that David Sifry and I have had great difficulties navigating through the English site of Holiday Check as we went along. As good and successful as the German site might be, the international pages clearly need to be reconsidered and restructured, as they are greatly lacking consumer friendliness. Are they to do so, I see great potential for Holiday Check to gain a considerable amount of market share in the European market, with it's strong and vast network of people recommending hotels all over the world.

Although Holiday Check's weaknesses on an international level are quite apparent, Sifry has signalised great willingness to enhance in a project with HBM in the near future.  

In the past, Sifry has managed to secure some great deals for his company which has boosted his sales by a tremendous amount. He can now also put the guides on digital devices, like the Kindle from Amazon. Additionally he has partnered with Singapore Airlines to promote his Travel Guides.  He is said to start translating his Travel Guides into many more European languages, making his Offbeat Guide company even more appealing for HBM with its strong focus on the European market. 

@Sixth Floor: reconsider it again.... 

Best,

J

 

Advertising on Social Networks

Hi People, 

Sorry for the delay in blogging. I am aware that most of you have been craving my next entry; your patience shall now be rewarded. 

Over the last couple of days I have had the privilege to attend various interesting lectures and conferences. I went to a class given by professor Weigend in Stanford,  entitled Data Mining and E - Business: The Social Data Revolution. As interesting and sophisticated as this might sound,  the execution and presentation  was of a rather poor standard, with the students clearly not embracing the subject matter, and the lecturer struggling to cope with the lack of interest shown by his scholars. However, thanks to a very informative guest speaker, I still managed to get something out of this lecture with respect to the future of advertising on social networks. 

I was able to relate to what I learned during this class in the Silicom Summit  two days later. The Consumer Media Panel with Kara Swisher, Yossi Vardi, Marissa Mayer and Tom Rogers was the definite highlight of this conference. A few different key ideas and concepts emerged out of this talk; every single one of the panelists agreed on the immense importance that people place on social value, i.e. the fact that they want to be connected with their friends or family, and their willingness to pay money for that. Contrary to entertainment, which is regarded as secondary by consumers, social value is of the highest priority to each and every individual on this planet. As a result, it is clear that people would be willing to pay for certain services, are they to increase their social standing (Elite Partner). Yet the question remains why so many social networks that provide this social value have failed to monetize. Facebook for example is a great success on a conceptual, but not on a financial level. The crucial factor for this failure has been the unsuccessful implementation of advertising on social networks. Customers that engage in platforms like Facebook or Myspace regard advertising on their site as intrusive. Furthermore, due to the diversity and variety of interests and desires of the people on the site, advertisers have really struggled to target their ads successfully. The reason why Google is making so much money is because they have found the software that enables them to connect the most suited advertisements with every search on their website, a concept that they have called "targeted ads". Yet it must be clear that this will only get you the high profit margins that Google is enjoying when these advertisements are happening on a large scale, as the cost of an advertisement in a magazine and the cost of an ad on a webpage is hugely different. Jeff Zucker, head of NBC broadcast, made a famous quote that explains part of the problem. He remarked that the internet is turning "analog dollars into virtual pennies". 

Thus, the consequence of this needs to be a radical change of advertising, both on a conceptual and on an ideological level. We have to start thinking about more sophisticated ways to transmit information to the consumer. Are we to do so, the web provides us with a great advantage over television. We can trace down the exact amount of people that have been influenced by the advertisments and the time that they have been interacting with them. In this way one could prove to companies that it would be more beneficial for them to increase their marketing budget spent on the internet, and reduce their budget spent on, say, television. There is a huge potential for growth in this market, with 30 - 40 per cent of peoples' free time being spent on the web, and a number not remotely as big as this representing advertisement in this sector. Nevertheless, none of the panelist was able to give a clear answer to how the business model of Facebook, Twitter and all the other social networks should look like.

J