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TMT Trends 2017 – Oscars Oversight, MWC Mediocrity, Publishing Problems, M&A Mistakes Avoided

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Nostalgia as the name of the game

Nostalgia has been the name of the game for many in the world of TMT [technology, media, telecommunications] for a couple of years now, as TV series are rebooted and eras brought back to life (think Fox’s The X-Files and Netflix’s Stranger Things, FX’s The Americans respectively), movie franchises are retooled (think Kong: Skull IslandBeauty and the Beast) and books also drag people back to the 80s (think Entertainment Weekly’s number 1 book of 2016, The Nix).

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Nostalgia is almost certainly an appealing emotion for many media executives today too. In entertainment, they may look back to fond days before PwC screwed up who won an Oscar and who hadn’t; in technology, vendors are leveraging “digital detox” trends as an excuse to remake old products and in publishing many are surely screaming for the days before digital, when staff at the likes of Conde Nast were still allowed to throw “hissy fits” (to quote British Vogue’s Lucinda Chambers from the recent BBC documentary on the magazine). The empire is having to fast come to grips with a world of declining print revenue shared by all in the industry, as comprehensively covered in a recent piece by the Financial Times.

The one outlier to this trend, fortunately for them, is Viacom, which recently decided that instead of seeking refuge in the past (and in sheer scale) by re-teaming with CBS after splitting over ten years ago, it would instead streamline its operations down to six “flagship brands”. Undoubtedly the wiser move (if only based on the above cheat sheet from The Hollywood Reporter).

This article will focus on those first two issues, last weekend’s Academy Awards and last week’s Mobile World Congress event in Barcelona.

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Oscars oversight

Talk about your burning platform. Last night Zeitgeist sat down to watch Deepwater Horizon, last year’s film an avoidable disaster in an event involving a lot of due diligence, seemingly little of which was executed properly.

So it was – far less catastrophically – with the 89th Academy Awards last weekend. PwC were caught out for the first time, having overseen the awards ceremony’s handing out of winning envelopes, among other things, for 83 years. In their apology, the firm explicitly made reference to the fact that a) such an incident had been foreseen b) protocols had been prepared, in case of such a rare eventuality c) these were not followed through quickly enough on the night. As with many cases of significant error, the fault appears to be with an excess of comfort.

  • Firstly, PwC as a firm, it could be argued, had become too comfortable in the role of auditor. In an interview before the ceremony with one of the two partners involved, it was revealed the opportunity to be auditor for the awards had never gone out to tender. This is poor due diligence on the part of the Academy.
  • Secondly, Brian Cullinan, one of the PwC partners, seemed himself to have acquired too much comfort with his role. Whether this was tweeting (hastily deleted) pictures of Emma Stone at the moment he should have been concentrating on his work (see picture above), as Variety revealed, or – as the same publication also uncovered the other day – that he wanted to have an on-stage presence, involving a skit with the host, Jimmy Kimmel.
  • Thirdly, we would also add that – having worked for Deloitte in a strategy role in days gone by – PwC should never have let these two individuals stand in the limelight. Any project, however glamorous (or not), should always have only one face, that of the company as a whole, not an individual.

The eventual winner, Moonlight, was praised by The Economist (among many others) for being a wonderful film, and one that deserved to win the coveted Best Picture award. Interestingly, it noted how it had been made for “a tenth” of the budget of films that had won in the past several years. This is a worrying trend, as these prior winners were already considered to be of a small budget; minnows that did not attract the attention of the studios, who increasingly find themselves in the comic-book franchise game, rather than the Oscar race. It bodes poorly in the medium-term for the release and backing of films that try to tell human stories about real life; art that may actually have an impact on others. It is these types of films that, with current political turmoil, are needed right now.

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MWC mediocrity

Innovation in mobile is becoming harder and harder to come by. If, as Forrester reported recently, smartphones are in the hands of 40% of the global population (even including those people hanging out with penguins in icy tundras and running away from lions on barren plains) then such a product is in need of something new to differentiate the market for consumers. At the annual Mobile World Congress, such things were in short supply. This week’s Economist quoted Ben Wood of CCS Insight summarising the event as a “sea of sameness”.

Indeed, ZTE (as above), had a gloriously twee “fairy garden” on display, which seemed very very similar to the one we saw at MWC in 2016. From a product point of view, Nokia (yes, Nokia) seemed to generate the most buzz for its revamped 3310, a resurrected product from a bygone mobile age. A feeling of sameness hung in the air from those reporting from the ground too; cynicism was prevailing.

Last year, Zeitgeist found that if you didn’t have Oculus at your stand (for any reason, no matter how inconsequential), you were a nobody. You also needed to be talking about 5G (no matter how vaguely). The same seemed to be the case this year, except more so. This, despite the fact that Oculus has squandered an eighteen-month lead in the market, now with a position of third in the VR marketplace by revenue. VR in general has yet to transfer to a mainstream pursuit, to the surprise of analysts. 5G, on the other hand, saw some glacial movement. While operators in Japan and South Korea had already begun investment and deployment of the networks before standardisation, the UN’s ITU body has now set those standards, laying the way for other markets to begin upgrading their networks. Their challenge is a formidable one, and to be honest they should not expect it to be anything other than a thankless task. Their main approach to this eventuality at the moment seems to be bigging the technology up beyond all recognition, which has started a backlash of sorts among the more experienced in the sector.

Tech frailty in 2016

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In the course of history, many smart people have been scared by the rapid progression of technology and its impact on the way we live. Forget the printing press; Socrates was concerned that even the technology of recording via written documents (i.e. writing) would “create forgetfulness in the learners’ souls, because they will not use their memories”. One need only look at the graphic above, representing swings in market share for tech titans, to see significant change in just the past 35 years.

January has been a difficult month for the stock market, with share prices around the world taking a tumble. A lot of the liquidity in the market rests on the valuation of a growing number of technology firms, whose route to profitability varies wildly. The oft-written about “Unicorns” are seemingly due for some market correction – no bad thing for the tech sector – but what about the bastions of the industry, how are they looking?

Twitter – The firm would have breathed a sigh of relief at the end of last year, when original co-founder Jack Dorsey committed to returning to the company. There were promising sounds at first, but recently it has been mulling a move away from the 140-character limit that defines its modus operandi. It has the potential, according to Forrester, to repackage such long-form fare in the mode of Facebook’s Instant Articles. But attempting to emulate what has already been done cannot hold any hope for actually catching up with its rival. An article in The New Yorker this week derides the social network, calling out its lack of direction, and questioning its relevance in a growing pool of competitors. Twitter’s US penetration has been flat for the past three quarters, and Snapchat is nipping at its heels in terms of engagement. While overall Twitter is seeing steady growth, it’s rate of growth continues to decline

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Facebook – By contrast, Facebook is doing well, particularly concerning its financial performance. Its increasing collaboration with telcos as it explores new revenue opportunities pave the way for sizeable rewards in the medium term. And it is slowly learning from the likes of WeChat and Kakao Talk in Asian markets on how to better integrate various functionality into its Messenger app; it’s first foray is working with Uber to allow users to hire a car without leaving Messenger. (This week Whatsapp also begun to get the message, no pun intended). We commented in our last article about how the social network is fast having to adapt to an ageing user base and lower engagement, but Facebook is attempting to combat such trends with numerous tactics. Sadly, its attempt to provide free internet services in developing markets has run into obstacles. In both Egypt and India, government regulators have interceded to stop the network from running its Free Basics service, under the guise of net neutrality (which in our opinion stretches the definition, and the spirit, of net neutrality).

Yahoo – The troubles for this company are more than we can summarise in this short review. Let it suffice to say that Marissa Mayer’s wunderkind sheen has been significantly tarnished since her arrival at the company in 2012. In an editorial in the Financial Times last month, the company was described as a “blur of services and assets of different values”. As her inescapably significant role in the organisation’s lacklustre performance becomes increasingly apparent – hedge fund Starboard Value has issued an ultimatum for her to either leave peacefully or be replaced by shareholder vote come March reports are that Mayer will have to lay off around 10% of the company. The FT puts it well,

[R]ather like AOL, it is considered a service stuck in internet dark ages. It is what grandma uses to look up the weather. It is not for Snapchatting teenagers. And it is not what investors crave most of all: the prospect of growth.

Amazon – Until this week the company had been faring extremely well, and its most recent concern was not getting investors too excited about its recent profit announcement. And while it’s reporting this week of a 26% YoY rise in sales was welcome, its fourth-quarter profits of $482m were one-third lower than what Wall Street analysts were expecting; the stock plunged 13% as a result. The disparity between rising sales and profits that don’t align to such a rise are nothing new for the company, unfortunately.

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Holistic sector frailty – Two excellent articles in The Economist this month reveal a sector that is experiencing growing pains as the current digital era reaches a period of relative maturity. As the hype dies down, what hath such new ways of thinking, making and working wrought? The first article examines the seemingly glamorous role of a techie working in a startup firm, and the pitfalls that come with it. The article reports that “Only 19% of tech employees said they were happy in their jobs and only 17% said they felt valued in their work”. In looking at the explosion of demand for the inadequately named Hoverboard, the second article identifies that globalisation has vastly sped up a product’s journey from conception to delivery at a consumer’s home, at the expense of a proper regulatory system; it is unclear with so many disintermediated players who should shoulder the burden of quality control. The Economist sees such risk as a parable for the tricky place the sector as a whole finds itself in.

 

Taking flight – Opportunities and obstacles in democratising luxury

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I don’t think democratic luxury exists. I don’t believe in something for everyone… How can we possibly put these products on the Web site without the tactile experience of luxury?”

– Brunello Cucinelli

The democratisation of fashion took a beating this past week as news reached Zeitgeist that Fashion’s Night Out was to be no more. Spearheaded by Anna Wintour at the height of the global recession, the idea was for a curated evening; a chance for stores to open their doors late, inviting a party atmosphere and focussing spend on a calendar event. The Wall Street Journal wrote that last year, “Michael Kors judged a karaoke competition at his store on Madison Avenue, rapper Azealia Banks performed at the MAC store in Soho and a game night was held at a Kate Spade store.” The evening festivities were replicated across New York, London and other cities.
Zeitgeist happened to be on Manahattan’s Spring Street last September when the most recent FNO was held, waiting patiently for a perenially-late friend who works next door to Mulberry. While waiting, it was absolutely fascinating to see the sheer of variety of people out on the street. While the crowds were mostly composed of women, the groups ranged from college-aged JAPs and the avant-garde to hipsters and stay-at-home mothers. Most gawped excitedly as they beheld the Mulberry boutique, enticed by the glimpses of free food and drink, as well the sultry bass tones of some cool track. One elegantly dressed fashionista strode hurriedly past Zeitgeist, lamenting to her cellphone “Oh God, it’s Fashion’s Night Out tonight”.
Ultimately perhaps it was such feelings among the fashion set that caused FNO to come to an abrupt end. But Zeitgeist got the sense that, while undeniably a celebration of fashion and an opportunity for brands to showcase their attractively experiential side – particularly to those who might usually be deterred by luxury brands and their perceived sense of formality – there weren’t a great deal of people actually buying things. It’s quite possible that the whole strategy of attracting a crowd who would not otherwise frequent such stores backfired; they turned up, sampled the free booze, felt what it must be like to shop at such-and-such a label, then moved on to the next faux-glitzy event with thumping music. This then was a failed attempt to bring luxury to the masses.

On a macro scale, the cause for democratisation is hardly helped by the global financial crisis. Although over four years old, the ramifications and scarring done to the economy are still sorely felt. This is illustrated in the unemployment figures around the world, tumultuous elections and anecdotal tales of hardship. More starkly, they are being backed up by solid quantitative research that proves we as a world are less connected now than we were in 2007. In December last year, The Economist reported on the DHL Global Connectedness Index, which concluded that connections between countries in 2012 were shallower (meaning less of the nation’s economy is internationalised) and narrower (meaning it connects with fewer countries) than before the recession. Meanwhile, just this past week, the McKinsey Global Institute published a report showing financial capital flows between countries were still 60% below their pre-recession high. This kind of business environment hardly fosters egalitarian conduct, and indeed such isolationist thinking was on show at Paris Fashion Week recently, where designers clung to their French heritage as a badge of honour. Exactly at the time when art needs to be leading the way in cultural integration, as emerging markets not only continue to make up a larger part of the customer base, but also develop their own powerful brands, it seemed that designers, like the financial markets, retreated to what they knew and found safe.

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The world is less connected today than in 2007

Where the ideology of democratising fashion has seen more success is of course online. We’ve written before about how luxury is struggling with the extent to which they invest in e-commerce. One of the principle hurdles is that the nature of luxury – elite, arcane, exclusive – is more or less diametrically opposed to the nature of the Internet – open, borderless, democratic.
Yet the story of Yoox – the popular and, in online terms, long-lasting fashion ecommerce platform – and its founder is one of just such democratisation. (It is particularly stunning to read of the difficulties the founder, a Columbia MBA graduate, Lehman Brothers and Bain & Co. alum, had in attracting VC funding). It also, crucially, points to the importance of recognizing multiple audiences, and how they like to shop differently depending on context. John Seabrook, writing in The New Yorker, reports that when Federico Marchetti set up Yoox in 2000, the world of ecommerce for fashion was regarded as a not particularly salubrious environment. Rather, the magazine compares it to outlet stores like Woodbury Common, fifty miles north of New York. Luxury brands like Prada and Marni could be found there, offering deep discounts on their wares, and it was for that reason – and the lack of control over their own brand – that they didn’t like much to talk about such places. This, despite the fact that they attracted 12 million people in 2011, “almost twice the number of visitors to the Metropolitan Museum”. Yoox was likewise greeted with much trepidation by fashion retailers. The article quotes an analyst from Forrester Research:

“It was a matter of principle with luxury brands that only people who shop on eBay use the internet – and their only interest was in getting a low price.”

Marchetti’s only available source of designer clothing was from last season and beyond, as no brand would sell their current collection. He curried favour with some of them though by advertising the prices without noting the discount customers were getting. Other than that, luxury brands took little or no notice.

Online shopping though would prove to be “one of the largest disruptions of the luxury-goods industry since the birth of the department store”. There are three kinds of online store today; those that sell deep-discounted goods on end-of-season wear, those that sell in-season clothing, and those that have flash sales of small numbers of clothing or accessories. It turned out there was an audience for all of these types of website. Bridget Foley, executive editor of WWD is quoted in the article saying “[T]here has been a sea change in attitude… I think [it] surprised the fashion industry… Just because you love clothes doesn’t mean you love shopping“. This struck Zeitgeist as one of the more important insights in the lengthy article. Though retailers often harp on about the importance of the retail environment, the need to touch the product, to be in an atmosphere where everything has been curated down to the finest detail, online neutralises all of that. This idea threatens those in the luxury sector, as the thinking goes that any such premium on products may seem less justifiable away from a Peter Marino-designed armchair and a nice glass of champagne. Such ideas are being challenged though. Not only is the nature of the store changing – from robotic sales staff to customers as models on the catwalk – but so is the view of the luxury customer as a homogenous, static group, devoid of context. Zeitgeist was at a Future of Media summit at the Broadcast Video Expo last week, where, as behavioural economics suggest, MD of Commercial, Online and Interactive for ITV Fru Hazlitt insisted that consumers had to be targeted in ways that were pertinent to them, not only as demographic groups, but in ways that recognised the context of how approachable they were likely to be at the time, given the programming they were watching. Fru admitted that in years past, broadcasters like ITV had seen advertising as “space to rent out”. Now they were thinking deeply about how and when is the right moment to reach their target consumer. It is the same in fashion. There is not one single way to reach the consumer; buyers of luxury goods do not want to be solely restricted to being able to buy your wares in a physical store.

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Chanel are one of the few remaining luxury brands to resist fully integrating online

Behavioural economics played a role in Marchetti’s initial framing of the audience for the website as well. He hired pedigreed fashion writers, as well as artists, architects and designers to make special projects that lent the website an air of curation, of something more special and rarefied that what one might find – or more importantly the way one might feel – at an outlet mall. Marchetti wanted the customers “to see themselves as connoisseurs, even if they were really just hunting for bargains”. The New Yorker article goes into some anecdotal detail about the way people shop on Yoox, which crucially differs not only from the way they would shop in-store, but also from other e-tailers. For online shopping in general, the experience is one where you can purchase ten items, and return nine of them with very little hassle, with credit for multiple rather than a single brand, and certainly no raised eyebrow from a pretentious shop assistant. Regarding specific sites, Yoox, unlike Net a Porter, for example, does not try to force a set of looks onto the user. Behavioural economics tell us that people irrationally value something more when they’ve been made to work a bit to get it. Such is the case now shopping for luxury items, which makes clothing not in-season (i.e. not currently in every shop window), both cooler and cheaper. It’s an act not to be discouraged. A Saks representative says customers who shop online as well as in store buy four times as much merchandise as customers who shop only in the store. What will worry retailers though is that the convenience of the online store outweighs the experience of the physical boutique. The New Yorker quotes a shopper: “I’ll never buy a dress at the Prada boutique again after getting these really amazing ones on Yoox.”

As well as setting up the Yoox website, Marchetti’s company now also powers the online stores of more than thirty fashion houses, including Armani and Jil Sander. Last summer, PPR joined in too, after conceding that their in-house expertise was not up to snuff. The latest development is making designs available to any customer as soon as it hits the runway. Burberry, as well as separate sites like Moda Operandi, have spearheaded this innovative change, which is effecting editorial as well as buying methods previously seen as unshakeable. The demand for this type of instant purchasing seems to be fueled by a niche – albeit a sizable one – that is not representative of the majority of luxury shoppers. The accessibility of a brand and its products is a tricky one to tread, one which Zeitgeist has written about several times before. Tom Ford performed a volte-face this year, after debuting his womenswear collection with no press and VIPs only, relented this year at London Fashion Week by letting bloggers write about the show. Chanel still steadfastly refuses to fully engage with online shopping. The tension is keenly felt in the New Yorker article, where Amazon’s new entry into the world of fashion is referenced. The CEO of Valentino is unconvinced: “Valentino is high luxury… People going to Amazon are not going to Valentino“. This smacks a little of pride and ignorance, for they most assuredly are, though perhaps not with luxury purchases in mind… yet.

It comes back to the idea that there are myriad types of luxury consumer. The industry has not fully acknowledged as of yet that the buying behaviour of a descendant of the ancien regime in Paris is unlikely to buy in the same way as a newly-minted businessman in Shenzhen. They may know that these types of buyers exist, and they may even create different products for each. Importantly though, they are not recognising that these people may go about purchasing in a different way. It’s not just a purchase journey that has changed massively in recent years, as McKinsey’s consumer decision journey illustrates above. It’s also, as ITV’s Fru Hazlitt insists, about recognising that different people shop in different ways, wholly dependent on context. Though Fashion’s Night Out may be on permanent hiatus, and though the global economy may be sputtering along in second gear, the opportunities to leverage deep insights into consumer purchase preferences are there for the taking. Yoox, along with a deeply complicated algorithm, are trying to tap into just this. But the process must start with realising that yes, actually, someone might want to pick up that Valentino dress while surfing on Amazon.

How imaginary crocodiles could have saved Nokia

February 10, 2011 Leave a comment

Why dominance means nothing if you stop delivering.

Zeitgeist reported recently on the number of high street names issuing profits warnings after an icy December kept shoppers away from their tills.

While these companies hang on hoping that things will improve (they won’t have liked the news this morning), other retailers have already bitten the dust.

The encroachment from online retailers onto traditional bricks and mortar stores is only going to increase as once dominant names slowly diminish into also rans, punished by their failure to adapt to progress.

While such a destiny is unfortunate for a lumbering organisation with a physical and costly infrastructure to maintain, for what should be a cutting edge technology company it is unforgivable.

A mere ten years ago, Finnish communications company Nokia dominated the mobile phone market. This rather quaint BBC story from from a decade ago reports that Nokia has strengthened its grip on the world’s mobile phone handset market’ and that ‘for the first time, Nokia has a market share more than double that of its nearest competitor’.

Back when Nokia dominated everyone

The major competitors back then were Motorola, Ericsson and Siemens and mobile phones were for calling, texting and maybe even playing Snake.

The report concludes with a prediction from Forrester who anticipated that ‘five dominant players would control Europe’s networks by 2015’.

While that prediction may come true, it is questionable whether any of the dominant manufacturers from yesteryear will be among them.

This week’s  ‘leaked’ memo from Nokia’s CEO Stephen Elop claimed that the company was ‘standing on a burning platform’ and surrounded by a ‘blazing fire’.

This is not a pleasant place to be. As mobile phones became smartphones an ever increasing importance was placed upon a phones operating system, both in terms of functionality and usability.

Just as the old high street stores threw up websites that weren’t quite as good as the dedicated online retailers Nokia produced Symbian, an operating system that failed to impress anywhere near as much as the ones you’d find on an Apple, Blackberry or Android phone.

The smartphones of today

Elop’s acknowledgement of the problem has opened the door for a radical change in strategy to try and rescue the problem.

Rumours abound of a partnership with an existing platform.

“It could either be a very bad marriage or a marriage of two players that have not been very effective alone.” commented Magnus Rehle of Greenwich Consulting.

The two likely candidates are Android, which would essentially relegate Nokia to a manufacturer in competition with other Android handset makers, or Microsoft who have also struggled to ship as many copies of their Window Phone 7 operating system as had been hoped.

The former would be a rather bitter pill for a once dominant giant.

The latter, and arguably preferable option, would bring together two massive organisations who have struggled to assert their dominance in the category.

Neither party would comment though it has been reported that Elop had been in discussions with both Microsoft CEO Steve Ballmer and Google CEO Eric Schmidt.

An announcement is imminent, though as Hakim Kriout of Grigsby & Associates points out ‘Very few companies regain their leadership once they’ve lost it.’

Whichever route Nokia go down the lesson is there for brands in every category.

It is infinitely preferable to stay top of the pile than to have to climb back up after a fall.

Regardless of your current dominance, if you fail to keep up with what people want and expect from you, someone else will deliver it and take your crown before you’ve admitted there is a problem. Brands must avoid the complacency that dominance can bring.

Despite their size, Avis demonstrate the challenger attitude with their ‘We try harder’ ethos while Google are ‘always in beta’ .

If brands assumed that they were surrounded by crocodiles and stayed alert to change and ready to react, they’d be much more likely to avoid getting trapped by ‘blazing fires’.