Last night, at the Royal Automobile Club on London’s Pall Mall, Zeitgeist was fortunate enough to hear Harper Reed, the Chief Technology Officer of the Obama 2012 US presidential campaign speak candidly about how he helped get out the vote and keep the Democrats in the White House. Harper is ex-Threadless, the famous T-shirt company that lets users contribute their own designs, with the most popular becoming actual products sold the world over. It’s a democratic philosophy, one that understandably caught the attention of the campaign committee. It is also the kind of thinking that cities like New York and Chicago are starting to employ; actively gathering, analysing and distributing data to inform policy implications and help citizens. What follows is a brief summary of his thoughts and points that Zeitgeist found interesting.
Harper began the talk with the fundamentals, discussing how, when he arrived, the campaign seemingly already had much of the data gathering resources needed to achieve what he wanted. The trouble was it as all siloed. Putting all the data together was a major step in the right direction, toward cohesive data analysis. He elaborated, saying they went from having fifteen different numbers for doors that needed to be knocked on, to one. On hiring the right people for the task at hand, Harper was explicit in noting that they had hired tech people and taught them about politics, rather than the other way around. He riffed on the state of journalism, saying it was similarly important when hiring journalists that know about tech.
One of the more interesting insights Harper talked about involved the target demographics. Those most likely to vote are male or female 18-28, and women perhaps in her 50s. The younger group is adept and comfortable with all digital platforms, but still uses paper a fair amount. Paper, by contrast, is an essential medium for that middle-aged female voter. So the insight was about making paper use more efficient, given these groups’ use of it. Understandably this was a hard decision for a group of very tech-minded people to arrive at, but the acknowledgement showed they were willing to park their own pre-conceptions on how things ought to be done.
Like many startups, they were constantly trying to fail in order to create redundancies. This involved hosting hackathons where code was obsessively broken and then reconstructed, “ensuring things would break in ways we understood”, as Harper put it. They had the same approach with the content they published, aggressively testing every piece to make sure it was relevant and engaging for the intended audiences. What they failed to foresee was the Internet activist group Anonymous launching a DDOS attack the day before the election to coincide with Guy Fawkes day, which helped trigger a meltdown over at Amazon’s cloud servers, AWS. Harper made it sound like not too much trouble to switch the servers from the East Coast where they had been affected, to the West Coast, but the experience must have been a stressful one.
Lastly, he offered an opinion increasingly shared by many in the industry, which was a reluctance to talk of mobile device use as “second-screening”. Mobile devices, Harper pointed out quite rightly and obviously, are the first thing you look at when you wake up, the last thing you look at when you go to bed, and the thing you’re actually looking at when you’re supposed to be watching TV. Mobile first should always be the initial mindset.
In questions, Ruth Porter asked whether there were any pearls of wisdom that could be applied to those in UK politics and how they go about with their own strategy of getting out the vote. Harper conceded he had met that day with a party “whose name starts with ‘L’”, and believed that what was key was investment, commitment and belief from the very top in what social and data could do for the campaign. Without that, such efforts would amount to nothing. The lessons of the Obama 2012 campaign – and the pitfalls of Romney’s campaign – offer valuable lessons for political parties, but it seems any efforts at cherrypicking ideas or going in half-hearted would doom any prospect of leveraging what the Obama team were able to do.
While it’s difficult nowadays to write about telecoms or the mobile sector without drifting off into other areas of the TMT industry, Zeitgeist spent an evening last month as a guest of Accenture in Cambridge, discussing the successes and failures of the recent Mobile World Congress in Barcelona. It came in the middle of a year so far that has already some significant shifts from mobile companies, in terms of branding, operations and revenue streams.
2013 has seen some interesting news in mobile. The week before last marked, incredibly, the 40th anniversary of the first phone call made from a mobile phone. This year also saw Research in Motion renaming itself to BlackBerry, with shares sliding 8% by the end of the product launch announcement for its eponymous 10 device. It saw Sky acquire Telefonica’s broadband operations, while responding to major complaints about the speed of its own broadband service. It has seen Huawei, which in Q4 of 2012 sold more smartphones than either Nokia, HTC or BlackBerry, come under scrutiny particularly in the US for its lack of transparency. Moreover, after much editorial ink spilled on Facebook’s lack of initiative and innovation in mobile, the release of the ‘super-app’ Chat Heads has piqued interest as it looks to compete with Whatsapp, Viber, iMessage et al., which Ovum reckons cost MNOs $23bn in lost revenue every year. This news mostly pertained to developed markets; JWT Intelligence’s interview with Jana CEO Nathan Eagle features some interesting insights on mobile trends in emerging markets.
Interestingly, 2013 thus far has also been witness to the beginning of more flexible contracts and payments. At the end of March, T-Mobile USA announced it would offer the iPhone to customers for cheaper than its rivals, and customers would not have to sign a contract. It effectively ends handset subsidies – something which Vodafone pledged to do last year and was punished by the stock market when it failed to do so – spreading the full cost of the phone over two years “as a separate line item on the monthly bill”, which may strike many as still quite a commitment. Customers must pay the bill for the phone in full in order to be able to end their tenure with the network. The New York Times elaborates, “Despite T-Mobile’s promise to be more straightforward than other carriers, some consumers might still find it confusing that they have to pay an extra device fee after paying $100 up front for an iPhone.” In the UK, O2 is going a similar route. At the end of last week the company announced similar plans to T-Mobile. While still keeping contracts as an option, the FT explained the company was looking to a plan, dubbed O2 Refresh, “that decoupled the cost of the phone from the cost of calls, texts and data. Customers will be able to buy a phone outright, or pay in instalments over time, and then sign up to a separate service contract that can be cancelled or changed at any time.” Although O2 said in the article that they expected customers to pay the same as they would on a standard contract, the new plans by both network providers will surely add to customer churn. Brands will have to work harder to develop true loyalty rather than relying on the lock-in feeling that adds to switching costs for many customers. Conversely, this added flexibility may make the providers feel less like utilities, creating more choice and differentiation.
At the aforementioned conference Zeitgeist attended last month, Accenture hosted an evening they dubbed “MWC: Fiesta or Siesta?”. It soon became apparent that many of the speakers invited were less than enthused with the conference this year. This was partly because there were no extraordinary leaps in technology or hardware on offer. It was also because of, as one speaker lamented, “the proliferation of suits”. Another speaker complained it was like listening to The Archers: long storylines “that ended up having no conclusion”. The very essence of the conference though is not about trendsetting, or cool new consumer devices. Mobile operators are utilities, the excitement around such an event is not going to be as visceral as that of SXSW or Embedded World. It led some to wonder whether the “real innovation was being developed in such ‘niche’ events, away from the “glitz”. Moreover, perhaps Samsung’s decision not to launch their new S4 handset at the Congress alluded to this lack of excitement, or at least a wish not to be drowned out by other announcements.
Among exciting trends on display at MWC, M2M – something Zeitgeist has written about before – was front and centre at the conference, particularly with regard to cars. Phablets continued to make their foray into the consumer’s view, with bigger screens meaning more data transfer. Zeitgeist wondered whether such a transition would put even more pressure on networks already struggling with large data handling. And although Firefox’s new OS gave some – including those at GigaOm – hope that it could provide more innovation through diversified competition in the marketplace, others, including Tony Milbourn, Executive Chairman of Intelligent Wireless, speaking at the event, thought it “underwhelming” after “lots of hype”. Bendable screens were also to be found at MWC, but those speaking at the Accenture conference like Richard Windsor of Radio Free Mobile said it was early days and much was still to be seen from this new type of phone. Its potential though, he readily conceded, was formidable. Wearable technology was a huge issue at the conference and one that Zeitgeist is particularly interested to see develop, especially as companies like Apple, Sony and Google enter the fray.
It seemed then that the Mobile World Congress failed to reflect what is turning out to be a tumultuous year in telecoms. Not only is there an increasing desire to address consumer needs – in the case of more flexible contracts and more consumer-facing company names – but as economies sputter their way toward ostensible recovery we are also starting to see M&A activity return to the sector. Time will tell whether new technologies, such as M2M or bendable screens can breathe new life into the sector.
“Breaking an old business model is always going to require leaders to follow their instinct. There will always be persuasive reasons not to take a risk. But if you only do what worked in the past, you will wake up one day and find that you’ve been passed by.”
- Clayton Christensen
What do Dell, The New Yorker and the music industry have in common? All three are currently grappling fundamentally with their business models in the face of creative destruction at the hands of digital disruption. The CEO of Dell is struggling to take it private at the moment – in a proposed $24.4bn buyout – in an effort to ensure its strategy looks away from the short-term needs of investors while it restructures with a new, long-term strategy that will shift focus away from its core PC business. An issue of The New Yorker hardly makes for a quick read, but has been one of the more innovative companies among its peers to embrace and experiment with digital. We wrote about their initiatives last summer. Recently, for their anniversary issue, the publisher offered digital issues for 99c, an offer that Zeitgeist took them up on, and it was pleasing to see how well the digital edition mirrored with print one, while at the same time adding some features that took advantage of being on a digital product. Last week, The Economist published an article on the music industry, which is beginning to see glimmers of hope in its revenues from digital sales. “Sales of recorded music grew in 2012 for the first time since 1999“, although only by an anemic 0.3%. This is still better than Hollywood, which had to settle for celebrating a flattening of home entertainment revenues, after years of decline. After almost being destroyed by it, a third of the music industry’s revenues now come from digital, but they are barely keeping up with the decline in physical sales, which makes up the bulk of other revenues. Lucian Grainge, chairman and chief executive of Universal Music Group, spoke to the Financial Times at the weekend,
“The industry needs transforming. It’s for others to decide whether they want to get stuck in the past or whether they want to come on the journey… We’ve learnt an awful lot, but it’s like being in a commercial earthquake and the reality is it takes time to get out from beneath the desk where you’re protecting yourself and move forward.”
Indeed, one of the biggest issues industries must address is when is the right moment to risk their current business model in order to address change and adapt. Grainge talks about the industry need for a “constructive collision” between musicians, content owners, distributors, entrepreneurs and investors. To what extent this is happening is unclear, but it is certainly thinking outside the box, and could well be applied to other areas similarly suffering at the hands of such change. As goes the music and film industries, so goes the print industry too? How do print titles develop profitable models for generating profits in the face of such volatility in changing consumption habits and digital disruption?
In December 2012, consultancy Boston Consulting Group (BCG) published a report entitled ‘Transforming Print Media’. The report begins on a sour note, admitting that the conventional wisdom is that newspaper and magazine publishing is “a dying business”. This is a hard assertion to counter though, and the consultancy’s own graphics show a rather alarming lack of growth in developed countries. Emerging markets, conversely, are seeing growth in both print advertising and circulation, for both newspapers and magazines. For instance, while between 2006 and 2011, the US has seen a compound annual growth rate (CAGR) decline of 12% in print advertising, China has seen an 8.5% uptick, and India a 13.9% growth. One of the immediate problems the report addresses, and one which Michael Dell is looking to neutralise is that of concentrating on short-term gain at the expense of long-term restructuring with a rigorous focus on which adjacencies work well and which do not. This can be immensely hard to justify in an environment of quarterly earnings reports and instant CNBC updates. BCG suggests implementing a strategy that will instill long-term change while also providing medium-term gains to keep investors happy. The report proposes a 3-5 year plan, and, interestingly, notes that success will rely “more on execution than insight”. Zeitgeist would counter that without both being optimal, the strategy is bound to fail. Moreover, knowing exactly who you want to target and how their methods of media consumption and interaction have altered / are altering is a critical tool for success. It also points out that new business models should not be about “trading print dollars for digital pennies”, something that the music and to some extent the film industry are both grappling with currently.
David Carey, head of Hearst Magazines, commented last year that, in publishing, “you need five or six revenue streams to make the business really successful”. One of the key points that recurs throughout the BCG report, which Zeitgeist, while working on developing strategic recommendations for the Financial Times last year, was also in favour of, was in extending the reach of the business in new directions. These directions leverage the brand equity of the company and extend into areas adjacent to the company’s expertise. For the FT, opportunities exist to extend the brand name into complementary areas of luxury with which the paper is already associated. Monocle has made in-roads into diversification by starting a radio station, which it says is very attractive to advertisers because they have a clear idea of their audience; the type of high-earning consumers who never normally listen to radio. As well as new revenue streams, Zeitgeist also focused on customer retention. One important consideration was that of both vertical and horizontal cohesion. The business as a brand must speak in a relevant, cohesive way across channels, and, in the case of the FT, speak in the appropriate way to its many different readers around the world. BCG advocates “reassessing vendor relationships; stream- lining editorial, content sharing, ad pricing, and production processes; and pooling advertising sales across titles or clusters… the right changes to financial policies— particularly to debt levels and ratios, dividends, and buybacks —can create a clear and compelling case for long-term health, can lift stock prices, and can attract more patient investors.”
Price is a fundamental consideration too. For the FT, Zeitgeist extemporised on the importance of price. Referencing behavioural economics, price for the FT acted as an anchor. It framed the paper more by juxtaposing it with its cheaper peers than by giving it any inherent value. In reports from the last few years taken both in Europe and the US, several major broadsheet newspapers were studied. They had all raised their prices. Some of them had seen their circulation decrease. But all of them had seen increases in revenue, even the ones that had lost circulation. Zeitgeist presented the FT with an analogy; the champagne label Krug, some years ago, hiked up its price, with little notice and for no perceived reason. Production, pricing and taste had not changed. The company lost some suppliers because of this change. But overall, their revenues increased. Krug was now in the upper echelons of the luxurious world of champagne, done to coincide with a global rebrand that appeared in all the right places. BCG alludes to the price increases in its report, saying consumers will “perceive greater value in the product than the amount it is costing them… there is the ability to increase these prices by as much as 70 to 100 percent…”. The report addresses paywalls, which Zeitgeist have written about several times in the past. The key it seems is in making these paywalls permeable, not inflexible. This is one issue the FT will need to address, one its peers, like the Wall Street Journal (WSJ), The New York Times and The New Yorker, have taken steps in the direction of already. The WSJ has frequently taken down its paywall during times of emergency (such as Hurricane Sandy), or for sponsored promotions. Advertisers still play a significant role in US print advertising – a $34bn role – but it is diminishing. The New York Times reported last year that advertising revenue had dropped below subscription revenue. As worrying as this is, it should provide an opportunity for companies to focus more on producing content that the actual readers want, rather than what the advertisers want to see. Broadly, the difficulty lies in getting consumers to see the worth of a digital product versus a hard copy. Obviously this issue is not restricted to the publishing industry.
The importance of the transition to digital is hard to overstate. As well as issues of pricing and paywall strategy, there is also social media to consider. Here, the FT is a good example of a brand that is playing it safe, operating for the most part with a very top-down messaging strategy that leaves little room for collaborative communication. But digital production and the expectation of instant news also means that companies are having to change the way they produce content. Speaking at the Future of Media summit at the Broadcast and Video Expo recently, Editor in Chief of Time Out London Tim Arthur said their changes were “led partly by necessity and partly by desire”. BCG outlines three models that are emerging: “dedicated print and digital editorial teams, integrated teams that operate throughout the print and digital platforms, and full editorial integration”. There are several advantages to be leveraged through digital as well. Research is a big one. Time Out’s Tim Arthur admitted they never used to carry out research until their recent transformation, which included an overhaul of their digital strategy, as well as making their hard copy paper free. It was great then to hear how the company was now using multiple channels to collate data and engage audiences at the same time. Unlike the FT, Time Out was no longer engaging in a one-way conversation, and they were operating with “less arrogance”. The company changed from a content-stacked, “trickle down” approach to one that recognised different audience needs over different platforms, which is a key insight. Furthermore, the opportunities to make advertising more engaging are also quite evident. iAds for example, allow more interaction. A recent ad in The New Yorker promoted a new book with a ‘tap to read a chapter’ function.
“These considerations inevitably lead to a series of hard choices about the degree of diversification that publishers can realistically undertake”, so summarises the BCG report, which suggests controlled experimentation to work out the best model. On an internal level, the company must convince employees that this change will be for the better and for the long-term. It must also convince shareholders of the benefits, while showing real value as early as possible. Such a transformation provides opportunities for streamlining technologies and future-proofing ways of working. It should make the brand think about what its equity is, and where else it can push out to in order to drive new revenue streams. Digital is not something to be feared, it should be embraced. The opportunities for more targeted, engaging advertising, not least through the use of consumer data, which also can help provide more tailored and attractive content – content that is “useful to others” as Arthur says – will be fundamental steps to take. The music industry, which was ravaged by Napster and its myrmidons at the end of the 20th century, took an age to wake up to realisation that money could be made from the millions of people who were already downloading songs online. The film and television industries have reacted slightly faster, and initiatives like Hulu, Ultraviolet and Tesco’s Clubcard TV will help stem the tide. Print on the whole is more on top of the game. Companies like the Financial Times and Time Out are driving innovation in the sector, but must still more readily embrace change if they are to really connect with future readers. Time will tell.
Zeitgeist has found himself leading projects several times over the past year. The prospect can sometimes be a challenging one, and the received wisdom is that looking to the past can help shed light on the future. Looking at both recent and ancient history, however, says one thing more than anything else; leaders are a victim of circumstances. Any strategy must adapt to context.
As a 20-something Londoner with money to burn, Zeitgeist naturally found himself on Saturday night sitting at home, reading The New Yorker. The fascinating review by Dexter Filkins of recent biographies on David Petraeus, former CIA director and responsible for the execution of the ‘surge’ in Iraq and Afghanistan, painted an interesting portrait of what leadership is about. He recognised that the system in place in the early days of Iraq of rounding up countless civilians in order to ferret out insurgents was not an efficient one, nor was it especially effective. Rather, as Filkins points out, “I witnessed several such roundups, and could only conclude that whichever of these men did not support the uprising when the raids began would almost certainly support it by the time the raids were over”. Leadership, then, in this case, came in the ability to spot a deficiency, and then building on it by offering a better solution. Petraeus, who liked to say that “money is ammunition”, focused on the civilians they wanted to protect, rather than the enemy they wanted to kill. This was a drastically radical notion at the time in the military. True leadership narratives are often riddled with anecdotes of absolute maverick behaviour of this kind. The fallacy is that, and this is one of Taleb’s main points in his book on uncertainty, Black Swan, the stories of those whose maverick ideas did not work out rarely make for interesting books or films. Few songs will be written about those guys.
Just as Petraeus was able to leverage the time in which he happened to be serving in order to spot something that he could perceive to be at fault and have the opportunity to amend, there is then an element of luck involved too. “I have plenty of clever generals”, Napoleon once said, “Just give me a lucky one”. Petraeus’ luck began with being around at the right time in order to see how things could be different. It continued when he managed to shepherd his idea for the ‘surge’ to fruition. While at the time the idea of deploying an extra 25,000 soldiers to Iraq was greeted with some mixed reactions to the say the least, it can certainly be said to have paid off in large part. It was another example of a maverick move that panned out well. However, as Filkins points out, the timing of it all was what made it such a success. The Awakening, a phrase given to Sunni-orchestrated truces with US troops that began before the surge, was instrumental. Filkins writes, “Could the surge have worked without the Awakening? Almost certainly not”. The Awakening most assuredly featured tactically in the execution of the surge, but you can be sure it was never part of the strategy. Perhaps it was the failure to notice this, and the attractiveness of the holistic narrative – another fallacy that Taleb notes in his book – that led to a surge being attempted, with far less success, in Afghanistan. What works in one place at one time, might not work again.
Zeitgeist is also currently wading through the Marie Antoinette biography by Antonia Fraser. It is quite extraordinary to note how many times the autocratic aristocracy are a victim of circumstances, rather than being able to dictate their own fate through their own policies and leadership. In the long-term, though greeted with warmth at the start of her reign, Marie Antoinette was always treated with a modicum of suspicion by the people of France, hailing from Austria, a country of lukewarm political relations and which culturally left many an ordinary Frenchman cold. It was long-gestating prejudices such as these that helped blacken the Queen’s name. The phrase ‘Let them eat cake’ had been ascribed to various monarchs going back over a century before Marie Antoinette ascended to the throne. In the medium-term, the support France provided in the American war of independence was pivotal. The Treasury spent an enormous amount of money funding the war, which was seen as a proxy battle with England. This action alone nearly bankrupted with country. But, away from finances, there was the ideological lens to consider as well. Landed gentry like Lafayette, who left nobly at the King’s command to support the war, returned not only as lauded heroes, but as heroes who had been fighting with a group of people who yearned to be free of a suppressive, royalist regime. Such thinking proved infectious, and was not forgotten when men like Lafayette returned home. Finally, in the short-term, an absolutely ruinous stroke of weather stunted harvests, creating mass famine across the country in the lead-up to the revolution. All such things were manageable to an extent by the royalty, but truthfully the origins of such influences were out of there hands.
CEOs today are seen as less wizard-like than they were five or ten years ago, when moguls, particularly in the media industry, bestrode the globe, acquiring companies at their whim, creating ‘synergy’ where none really existed in the first place (think AOL Time Warner). The paradigm shift of course has been in the global recession that few – including many a lauded business leader – foresaw. Confidence in such people has been shaken. What history tells us about the ways to handle leadership then can be summarised as the following: 1. Know your environment. Externalities and trends are likely to influence your business, and not always in obvious ways. 2. Be mindful of context. What works somewhere might not work in the same way again. 3. Appearance, rightly or wrongly, counts for a great deal. 4. When you choose to do something can sometimes be as important as the thing you are trying to do itself. 5. A small amount of luck can go a long way.
“[T]he big screen. That is its natural habitat—the only place, you might say, where its proud and leonine presence has any meaning. Anything more cramped is a cage, as Jon Stewart showed during this year’s Oscar ceremony. At one point, we found him gazing at his iPhone. “I’m watching ‘Lawrence of Arabia.’ It’s just awesome,” he said, adding, “To really appreciate it, you have to see it in the wide screen.” And he turned the phone on its side. Deserts of vast eternity, reduced to three inches by two.”
- Anthony Lane, The New Yorker
Film can sometimes be a mercurial medium. Especially nowadays. It encompasses multiple genres, and, like food, is meant for different occasions, for different needs. Of course, sometimes we go to bad restaurants, or order in, and the experience is terrible. Uber-flop John Carter cost Disney a cool $200m, and wasted many a precious dollar and hour for those that went to see it (admittedly few). But sometimes it’s like a great burger and fries – Die Hard springs to mind – and sometimes it’s a sumptuous 6-course meal cooked by a Michelin-starrred chef – Lawrence of Arabia, or All the King’s Men. Film can stimulate us, it can teach us, and it can be a breezy bit of consumption to pass the time, like a coffee at Starbucks. Moreover, as with food, it can be consumed in different places and circumstances. There are times when the right way to watch a certain film is on your iPad in a cramped airline seat. Pure escapism. But cinema has a crucial place too.
It was interesting today, when Zeitgeist went to see a movie, that it was preceded by an announcement showing an empty cinema, covered in cobwebs and dust, bemoaning the death of the medium at the hands of pirates. Its aim was to take the audience on a guilt trip: ‘Why are you illegally downloading films?’ ‘Why aren’t you coming to see more films at the cinema?’ it pleaded. There are a couple of things strategically wrong with this approach. Firstly, what is the principle problem here? Alright, people are not going to the cinema as often as we would like. Zeitgeist remembers in a brief stint working for Fox several years ago that people went to the cinema 1.8 times a year in the UK. The Economist reports that the share of Americans who attend cinema at least once a month has declined from 30% in 2000 to 10% in 2011. The assumption is that people are instead pirating films at home, thereby depriving studios of money (ignoring research that suggests those that pirate are often avid cinema-goers, and optimistically equating every film downloaded to ticket revenue lost). Well, one quick way to address this is to make films legally available – at a sizeable premium – on multiple platforms day and date. We’ve argued this before, and entertainment trade Variety has used our argument for a lead editorial. It should be recognised, that, although the most prominent face of the film industry, cinema is not what makes the studio money; for years the bulk of profits have been made in home entertainment consumption. Furthermore, there are two fallacies here. One is that cinemas make most of their profit from the snacks people buy at the cinema, not the films themselves. If you want to increase margins, there should be a much more prominent focus on food options, and that means offering a wider, more tempting range of food to be eaten, which is then promoted more effectively. The way such snacks are currently promoted – “Let’s all go the lobby” – has not altered for a half century. Lastly and most egregiously, the communication is completely misdirected, talking to the very audience who is already doing what the ad asks them to do. The ad is shown nowhere but the cinema, therefore only people who go to the cinema will be subject to this guilt trip. To avoid feeling guilty, one can avoid the ad by avoiding the cinema. The logic is completely twisted. Negative communications have been shown to be much less effective in influencing behaviour than positive affirmation. So let’s think about a way to promote cinema that goes beyond a highlight reel of what movies are on in a particular season. More robust revenue streams will have to be found soon. Less people are turning out to the cinema, and in foreign markets, which are doing relatively well, a far smaller chunk of box-office receipts go to the studios.
What also played during the reel before the film started was a short film by Disney Animation that has been nominated for an Academy Award, called Paperman (see trailer above). Zeitgeist had watched the short some days ago on his iPhone after coming across it on Twitter, and enjoyed it thoroughly. It was exciting and convenient to be able to consume something so quickly after hearing about it. Moreover, it was instantly shareable with the 400-odd people who follow our tweets when we retweeted the link. Seeing it in the cinema today though really reinforced the power of the big screen; the detail you couldn’t see on the iPhone, the great sound, and the shared laughter and enjoyment from those around you. “Grandeur is a far from simple blessing”, writes Anthony Lane in the same article quoted at the beginning of this post, in The New Yorker back in 2008. The pleasure of watching something in the cinema is ultimately an irrational benefit, which can be hard to quantify, but even harder to ignore.
It’s a common fallacy to think of a time before a change in status quo as somehow being magically problem-free. A Panglossian world where all was well and nothing needed to change, and wasn’t it a shame that it had to. Similarly, we cannot blithely consign the retail industry of the past to some glorious era when everything was perfect; far from it. The industry has been under continual evolution, with no absence of controversy on the way. It was therefore a timely reminder, as well as being a fascinating article in its own right, when the New York Times provided readers recently with a potted history and a gaze into the future of Manhattan department store stalwart, Barneys. Not only is their past one in which the original proprietor sought to undercut his own suit suppliers, creating a bootlegging economy by literally ripping out their labels and replacing them with his own, but it was also one where department stores served a very different purpose to what they do today. They had less direct competition, not least unforeseen competition in the form of shops without a physical presence. Moreover, today they are run in an extremely different way, with an arguably much healthier emphasis on revenue (though some might say this comes at the expense of a feeling of luxury, in a lobby now brimming with handbags and little breathing room). The problems and opportunities for Barneys could serve as an analogy for the industry of which it is a part.
Despite brief reprieves such as Black Friday (click on headline image for CNBC’s coverage), as well as the expected post-Christmas shopping frenzy, can one of the main problems affecting retail at the moment simply be that it is undergoing an industry-wide bout of creative destruction? Zeitgeist has written about the nature of creative destruction before, and whether or not that is to blame for retail’s woes, the sector is certainly in the doldrums. In the UK, retailers are expecting a “challenging” year ahead. Recent research from Deloitte shows 194 retailers fell into administration in 2012, compared with 183 in 2011 and 165 in 2010. So, unlike the general economy, which broadly can be said to be enjoying a sclerotic recovery of sorts, the state of retail is one of continuing decline. How did this happen, and what steps can be taken to address this?
Zeitgeist would argue that bricks and mortar stores are suffering in essence due to a greater amount of competition. By which, we do not just mean more retailers, on different platforms. Whether it be from other activities (e.g. gaming, whether MMOs like World of Warcraft or simpler social gaming like Angry Birds), or other avenues of shopping (i.e. e-commerce, which Morgan Stanley recently predicted would be a $1 trillion dollar market by 2016), there is less time to shop and more ways to do it. The idea of going to shop in a mall now – once a staple of American past-time – is a much rarer thing today. It would be naive to ignore global pressures from other suppliers and brands around the world as putting a competitive strain on domestic retailers too. Critically, and mostly due to social media, there are now so many more ways and places to reach a consumer that it is difficult for the actual sell to reach the consumer’s ears. This is in part because companies have had to extend their brand activity to such peripheries that the lifestyle angle (e.g. Nike Plus) supercedes the call-to-action, i.e. the ‘BUY ME’. The above video from McKinsey nicely illustrates all the ways that CMOs have to think about winning consumers over, which now extend far beyond the store.
If we look at the in-store experience for a moment without considering externalities, there is certainly opportunity that exists for the innovative retailer. Near the end of last year, the Financial Times published a very interesting case study on polo supplier La Martina. The company’s origins are in making quality polo equipment, from mallets to helmets and everything in between, for professional players. As they expanded – a couple of years ago becoming the principle sponsor of that melange of chic and chav, the Cartier tournament at Guards Polo Club – there came a point where the company had to decide whether it was going to be a mass-fashion brand, or remain something more select and exclusive. As the article in the FT quite rightly points out, “Moving further towards the fashion mainstream risked diluting the brand and exposing it to volatile consumer tastes.” The decision was made to seek what was known as ‘quality volume’. The company has ensured the number of distributors remains low. Zeitgeist would venture to say this doesn’t stop the clothing design itself straying from its somewhat more refined roots, with large logos and status-seeking colours and insignia. Financially though, sales are “growing more than 20% a year in Europe and Latin America”, which is perhaps what counts most currently.
In the higher world of luxury retail, Louis Vuitton is often at the forefront (not least because of its sustained and engaging digital work). While we’re focusing purely on retail environments though, it was interesting to note that the company recently set up shop (literally) on the left bank of Paris; a pop-up literary salon, to be precise. Such strokes of inspiration and innovation are not uncommon at Vuitton. They help show the brand in a new light, and, crucially, help leverage its provenance and differentiate it from its competition. Sadly, when Zeitgeist went to visit, there was a distinct feeling of disappointment that much more could have been done with the space, which, while nicely curated (see above), did little to sell the brand, particularly as literally nothing was for sale. The stand-out piece, an illustrated edition of Kerouac’s On the Road, by Ed Ruscha, Zeitgeist had seen around two years ago when it was on show at the Gagosian in London. Not every new idea works, but it is important that Louis Vuitton is always there at the forefront, trying and mostly succeeding.
So what ways are there that retailers should be innovating, perhaps beyond the store? One of the more infuriating things Zeitgeist hears constructed as a polemic is that of retail versus the smartphone. This is a very literal allusion, which NBC news were guilty of toward the end of last year. “Retail execs say they’re winning the battle versus smartphones”, the headline blared. What a more nuanced analysis of the situation would realise is that it is less a case of one versus the other, than one helping the other. The store and the phone are both trying to achieve the same things, namely, help the consumer and drive revenue for the company. Any retail strategy should avoid at all costs seeing these two as warring platforms, if only because it is mobile inevitably that will win. With much more sound thinking, eConsultancy recently published an article on the merits of providing in-store WiFi. At first this seems a risky proposition, especially if we are to follow NBC’s knee-jerk way of thinking, i.e. that mobile poses a distinct threat to a retailer’s revenue. The act of browsing in-store, then purchasing a product on a phone is known as showrooming, and, no doubt aided by the catchy name, its supposed threat has quickly made many a store manager nervous. However, as the eConsultancy article readily concedes, this trend is unavoidable, and it can either be ignored or embraced. Deloitte estimated in November that smartphones and tablets will yield almost $1bn in M-commerce revenues over the Christmas period in the UK, and influence in-store sales with a considerably larger value. That same month in the US, Bain & Co. estimated that “digital will influence more than 50% of all holiday retail sales, or about $400 billion”. Those retailers who are going to succeed are the ones who will embrace mobile, digital and their opportunities. eConsultancy offer,
“For example, they could prompt customers to visit web pages with reviews of the products they are considering in store. This could be a powerful driver of sales… WiFi in store also provides a way to capture customer details and target them with offers. In fact, many customers would be willing to receive some offers in return for the convenience of accessing a decent wi-fi network. Tesco recently introduced this in its larger stores… 74% of respondents would be happy for a retailer to send a text or email with promotions while they’re using in-store WiFi.”
These kind of features all speak more broadly to improving and simplifying the in-store experience. They also illustrate a trend in the blending between the virtual and physical retail spaces. Major retailers, not just in luxury, are leading the way in this. Walmart hopes to generate $9bn in digital sales by the end of its next fiscal year. CEO Mike Duke told Fast Company, “The way our customers shop in an increasingly interconnected world is changing”. This interconnectedness is not new, but it is accelerating, and the mainstream arrival of 4G will only help spur it on further. The company is soon to launch a food subscription service, pairing registrants with gourmet, organic, ethnic foods, spear-headed by @WalmartLabs, which is also launching a Facebook gifting service. At the same time, it must be said the company is hedging its bets, continuing with the questionable strategy of building more ‘Supercenters’, the first of which, at the time a revolutionary concept, they opened in 1988.
One interesting development has been the arrival of stores previously restricted to being online into the high street, something which Zeitgeist noted last year. This trend has continued, with eBay recently opening a pop-up store in London’s Covent Garden. These examples are little more than gimmicks though, serving only to remind consumers of the brands’ online presence. Amazon are considering a much bolder move, that of creating permanent physical retail locations, if, as CEO Jeff Bezos says, they can come up with a “truly differentiated idea”. That idea and plan would be anathema to those at Walmart, Target et al., who see Amazon as enough of a competitor as it is, especially with their recent purchase of diapers.com and zappos.com. It serves to illustrate why Walmart’s digital strategies are being taken so seriously internally and invested in so heavily. Amazon though has its own reasons for concern. Earlier in the article we referenced the influence of global pressures on retailers. Amazon is by no means immune to this. Chinese online retailer Tmall will overtake Amazon in sales to become the world’s largest internet retailer by 2016, when Tmall’s sales are projected to hit $100 billion that year, compared to $94 billion for Amazon. The linked article illustrates a divide in the purpose of retail platforms. While Amazon is easy-to-use, engaging and aesthetically pleasing, a Chinese alternative like Taobao is much more bare-bones. As the person interviewed for the article says, “It’s more about pricing – it’s much cheaper. It’s not about how great the experience is. Amazon has a much better experience I guess – but the prices are better on Taobao.”
So how can we make for a more flexible shopping experience? One which perhaps recognises the need in some users to be demanding a sumptuous retail experience, and in others the need for a quick, frugal bargain? Some permutations are beginning to be analysed, and offered. Some of these permutations are being met with caution by media and shoppers. This month, the Wall Street Journal reported that retailer Staples has developed a complex pricing strategy online. Specifically, the WSJ found, it raises prices more than 86% of the time when it finds the online shopper has a physical Staples store nearby. Similar such permutations in other areas are now eminently possible, thanks in no small part to the rise of so-called Big Data. Though the Staples price fluctuations were treated with controversy at the WSJ, they do point to a more realistic supply-and-demand infrastructure, which could really fall under the umbrella of consumer ‘fairness’, that mythical goal for which retailers strive. Furthemore, being able to access CRM data and attune communications programmes to people in specific geographical areas might enable better and more efficient targeting. Digital also allows for a far more immersive experience on the consumer side. ASOS illustrate this particularly well with their click-to-buy videos.
As the Boston Consulting Group point out in a recent report, with the understated title ‘Digital’s Disruption of Consumer Goods and Retail’, “the first few waves of the digital revolution have upended the retail industry. The coming changes promise even more turmoil”. This turmoil also presents problems and opportunities for the marketing of retail services, which must be subject to just as much change. If we look at the print industry, also comparatively shaken by digital disruption, it is interesting to note the way in which the very nature of it has had to change, as well as the way its benefits are communicated. It is essential that retailers not see the havoc being waged on their businesses as an opportunity to ‘stick to what they do best’ and bury their head in the sand. This is the time for them to drive innovation, yes at the risk of an unambitious quarterly statement, and embrace digital and specifically M-commerce. What makes this easy for those companies that have so far resisted the call is that there is ample evidence of retailers big and small, value-oriented to luxury-minded, who have already embraced these new ideas and platforms. Their successes and failures serve as great templates for future executions. And who knows, the state of retail might not be such a bad one to live in after all. Until the next revolution…
“If all signs are autonomous and refer only to one another, it must seem to follow that no image is truer or deeper than the next, and that the artist is absolved from his or her struggle for authenticity.”- Robert Hughes, 1989
Tom Wolfe, one of America’s greatest living writers, recently had his latest work, Back to Blood, excerpted in Vanity Fair. In it, the author excoriates the miasma of power, money, influence and ignorance that surrounds the contemporary art market. Wolfe describes the billionaires descending on Art Basel Miami as a “raveling, wrestling swarm of maggots”. What has become of art, its pursuit and its collection?
The pursuit of excellence can sometimes can be a quixotic quest, all the more so when dealing with something as ephemeral as art, and particularly with the contemporary art market today. But how does excellence, or authenticity, in art cope with a nexus of questionable experts and highly liquid but bifurcating market, in a world where promotion is all?
Part of this problem resides in the question of expertise, its influence and its value. If one thinks of artists in the period of the Italian Renaissance, the quality of the fresco or sculpture is mostly self-evident in the verisimilitude of the work. Moreover, the media worked with often necessarily involved painstaking, long-term commitment and toil. What artists like Marcel Duchamp began and Andy Warhol perfected was the thought that works of art should be valued by their conceptualism. In other words, not necessarily how much time or effort was put into making an object, or whether it was any “good”, aesthetically speaking, but with more emphasis on the power of the underlying idea – representation – behind the work. “Art can be expressed purely as a thought or action”, wrote the FT recently. This postmodern concept has not evolved since the time of Warhol. Without being able to critique the amount of expertise in the manufacturing of an object, it becomes harder to address the worth of an object, unless you are in the presence of a designated ‘expert’. The situation risks creating an echo chamber of unedifying art that speaks to no-one and is so self-reflexive it loses all meaning. It also allows for an artificial inflation of prices, creating a false market that shuts out all but the ultra-rich, whose tiny but influential numbers can significantly skew the market. One need only look at how much the Chinese taste for wine is influencing global production to see such an instance in action.
Such points were neatly summed up recently by the prestigious art critic and lecturer Dave Hickey, when he announced he was leaving the art world:
Writers, dealers, curators, advisers have become “a courtier class – intellectual headwaiters to very rich people”. For this 0.01%, “art is cheaper than it’s ever been” but “nobody cares if it’s any good, and everybody hates it when something’s really great”
The ‘experts’ who assign value to contemporary art objects have come full circle. Rightly recognising that there is art worth shouting about beyond an arbitrary, Westernised canon, it has now gone too far in the other direction. As a brilliant FT article on the subject recently pointed out, “The market loves theory because it spares the need for discrimination.” Making matters worse, the article quotes gallerist David Zwirner lamenting, “connoisseurship is really not valued, sometimes it is even looked down upon”. All of which leads to a highly fragile concentration of expertise and financial capital sitting with a select few. If we look again at the wine industry, American wine critic Robert Parker was at one time so influential that growers in France began changing their product purely to suit his taste so as to earn a higher rating on his guide. Zeitgeist asked art critic Brian Sewell at a debate earlier this year whether influential patrons such as Charles Saatchi and Francois-Henri Pinault were playing a similar role in the contemporary art world; shifting value perceptions of art and artists according to their personal whim. It helps little when major collectors like Frank Cohen admit publicly that they have “bought a load of bullshit”. The quotation may sound flippant, but it underscores the massive influence the bullshit they have bought has on the broader prices in the art market.
Art adviser Lisa Schiff spoke openly about this recently to Forbes magazine, saying she was “worried that there are a lot of young artists that could really take a nosedive”.This influence is being felt keenly right now with small but highly influential – and influenced – groups of buyers in Russia, Brazil and China. But as the BRIC regions continue to stall, what will happen to arbitrarily in-demand art and artists if these markets suffer further losses or even a sudden shock? Such problems are further compounded by the massive rise and fear of litigation, as previous, bona fide experts able to certify works as being genuine are being scared away by the threat of legal action.
So there’s an expertise fallacy here, one which is not restricted to the world of art. Elsewhere, marketing, something that admittedly has always been part of the selling of art to an extent, is becoming increasingly essential for a successful artist or studio. The Montoya exhibition currently on at The Halcyon Gallery in London represents the epitome of this new trend. Full-page ads in The Economist and 30-second spots on CNBC (see beginning of article) are being taken out for the exhibition, placed seemingly without irony at the feet of the very audience the art seems to be mocking, or at least parodying. It is the increasing lack of ironic awareness that creates an emptiness in the purchase and reputation of some of today’s bigger artists, including Jeff Koons, Richard Prince and Takashi Murakami. Interestingly, the latter two have both seen stratospheric success that goes beyond the confines of the art world, helped in part by collaborations with luxury goods company Louis Vuitton.
The marketing of art is at its most visible at contemporary art fairs – of which there are now more than 200 annually around the world – mentioned earlier as a subject of Tom Wolfe’s new work. Frieze, which takes place annually in London, is one of the most well-known. It was intriguing to see that this year saw the debut of Frieze Masters, which some saw as an attempt to breathe new life into an event that had begun to lose its ability to surprise. It was also seen as a deliberate attempt to focus attention on more established names in order to avoid some of the volatility the market has seen with newer, less-known artists. So the market isn’t so insular that it doesn’t recognise the need for significant change.
Collecting art is something that few of us can turn into a committed past-time. Moreover, the vagaries of art over the past ten years-plus have been such that only a select few would be able to decipher the worth of a current artist’s produce. The value of their art has been dulled by demographic shifts and concentrations, by overly-excessive marketing tactics and by a reduction and muddling of the nature of what it means to be an expert. Regulation of the sector seems overdue, as conflicts of interest and an oligopolistic marketplace seem to cry out for legal oversight. Some of these problems are not restricted to the art world and it will be interesting to see if a paradigm shift sits on the horizon. The Internet is providing some antidote to this. Recent online-only auctions by Christies – one of ArtInfo’s top ten stories that moved the art market in 2012 – have made the process of bidding for items extremely popular, and small art-sellers like Exhibition A are illustrating there is room for innovation in the industry. Is the art market in an aesthetic and financial bubble, and will it burst? Time will tell.
Zeitgeist was resting easy this morning with the news that Obama had been re-elected for another four years. Before the tickertape had even fallen though, marketing managers were thinking of how they could take advantage of this national event. Leveraging, tapping into or piggybacking on a particular theme is a popular move, though it can be risky, as the recent brand activity around Sandy proved. So it’s nothing new. Nevertheless, this was a quick turnaround. For though Obama did not give his acceptance speech until around six hours later, Lacoste was ready with their latest iteration of their eCRM programme at around 7pm EST. Presented as an email to get people to “vote” for a red or blue polo, the pre-header said it all; “You’ve Picked Your President – Now, Pick Your Polo!“