In a nutshell.

That.

 

*          *          *

Problem? Solution:

CEO-Read  –  Amazon.com  –  www.smroi.net  –  Barnes & Noble  –  Que

Game change – Part 2: Moneyball and the second dot.com bubble

Moneyball - Courtesy of Sony Pictures

Filed under: opinion

Earlier this week, I wrote about what Moneyball‘s Peter Brand called the “epidemic failure to understand what is going on” plaguing the business, marketing and advertising worlds – when it comes to understanding that social media and social business are not just extensions of traditional “digital” strategies. Yesterday, I was reminded by both Christopher Barger and Justin Whitaker that the same type of off-target thinking is also plaguing other aspects of the world of business, particularly when it comes to the ever hot world of the dot-com.

If you read that post, you’re already 80% of the way there. What follows will fill in the remaining blanks for you. Here is basically how this plays out:

Christopher Barger (on Facebook): And the bubble burst countdown is officially on in 3…2… 1. The “logic” behind this claim is utterly insipid. And we’ve seen this movie before, folks. It came out in 1999 and was called the Dotcom boom. Dear social media business: Stop it. Just. Stinking. Stop it.

Here is the story he is referring to: Forbes – Pinterest is a $7.7 Billion Company. Below are a few clips from that Forbes piece.

Facebook values Instagram at $1 billion and LinkedIn (LNKD) has a market cap of $10 billion. Twitter claims it is worth $8 billion. So where does that leave the new kid on the block Pinterest? Well, it looks like you can pin $7.7 billion on your Pinterest board.

Pinterest is important because the traffic is growing and statistics are impressive. It is known for its magazine quality images. Pinterest is to artful images what Twitter is to artful words. What’s more, Pinterest appeals to college-educated females between the ages of 25 to 44. A sweet demographic known for its spending decisions and habits.

According to the scoreboard from Experian Hitwise data from March 2012, Pinterest is the third most popular social media platform in the United States. It is running close behind Twitter in the number of total visits. Facebook is the big beast at seven billion total visits, Twitter while very far behind, is logging 182 million visits. Pinterest is next with 104 million and gaining quickly.

[...]

Pinterest scored 21.5 million visits for one week at the end of January which was an increase of 30x from six months prior. So we can try to place a value on Pinterest by visits alone. If LinkedIn has 86 million visits and a market cap of $10 billion that values the visits at $116. By that method, you could pencil in a value of say $12 billion for Pinterest.

I am not making this up. It gets better.

Worth of Web, a website value calculator places Pinterest’s value at $267 million. It says the company has 10.8 million daily visits and 324 million monthly visits. It claims daily revenue is $74,520 with annual earnings of $26 million. Unfortunately Worth of Web seems to be way off on its valuations. For example, Worth of Web only values Yelp! (YELP) at $115 million, while it currently has a market capitalization of $1.5 billion. It also grossly underestimated Instagram at $2.6 million. But if we take the Yelp undervaluation and apply that to Pinterest, you get roughly $3.4 billion. Not so far-fetched these days. 

[...] Thus, grabbing an envelope and scribbling on the back, I split the difference between the two previous valuations and come up with $7.7 billion.

Don’t get me wrong: I love Pinterest, and I think there’s big potential for the platform, but I’m also not stupid. I can put its potential value in perspective. And I know how easily bad metrics, bad measurement schemes, bad assumptions can put us all in the weeds. Forbes evidently… not so much.

Look at that ridiculous valuation model. This is how a young company with $75,000 in daily revenue (according to that piece), by being compared to other overvalued companies, can magically find itself valued at $7.7 billion. Even if its revenue grew 30x in the next year, (and that is a very big “if”), you would be looking at $780 million/year. Can we say now that Pinterest has a 10-year shelf life? Where is that $7.7 billion coming from? Or that even more fascinating $12 billion figure? This? Nope. Pinterest, like every other social platform won’t be disrupting the market that long. Something else will come along to take over and kill its momentum, and it won’t take ten years.

So thanks, Forbes, for that enchanting little ride on the magic math train. Welcome to the fairy-dust world of equivalency equations – the same equations that lead agencies and brands to mistake the cost of acquiring an impression to the market value of a follower, to the notion that a Facebook fan is worth $372.99 without ever taking into account that fan’s purchasing behaviors, to the notion that a random start-up with no revenue model might simultaneously be $70M in the red and worth more than Luxembourg and the Isle of Man combined.

As Chris points out, we’ve been here before. But this is just the layup. There’s more:

Justin Whitaker (on Facebook): Olivier, did you see Calacanis’ newsletter on recent valuations? Gives you some insight into what is going on. His end result is that we have competition for good teams, and that’s pushing valuations up. To my mind, that’s exactly what’s wrong with what’s happening . We’re valuing teams, not revenue models.

That last sentence. Sound familiar? Remember Peter Brand’s conversation with Billy Beane from yesterday’s post? Hold that thought. Here is what Jason Calcanis had to say on Launch:

 Is the internet industry experiencing a bubble? Yes there are bubbles, but those bubbles make up the froth on top of the massive rising tide of value being startups are creating today.

The $210M sale of OMGPOP and the $1B Instagram purchase feel like a bubble, but you have to step back for a moment and realize that OMGPOP was purchased for 2% of the value of Zynga and Instagram for 1% of the value of Facebook.

Now, are Zynga and Facebook overvalued? Well, that’s a separate email of 2k words. The short version is they are aggressively valued based on their massive growth. I’ve heard folks say that $10B for Zynga and $100B for Facebook are anywhere from 0 to 30% rich. Most folks believe we are seeing a premium for growth — not a bubble — in these stocks.

[...]

What we’re seeing now is founders doing their jobs: getting the best price for their teams. Angels are willing to pay under these terms, so they are essentially saying they’ll give up the first 2x to 3x of a deal’s return in the hopes of getting YC’s next Airbnb or Dropbox. (Those two investments are up 50x to 300x since their YC days.)

Most angel investors have their activity covered by one big hit. Bottom line: It feels like a bubble, but it’s really just a hot market.

[...]

We’re not in a bubble. We’re in a revenue tsunami like nothing any of us have ever seen in our lifetimes.

In a market like this, founders shouldn’t optimize for valuation. They should optimize for getting the involvement and attention of the best investors who provide the best long-term value.

And there you have it: “We’re not in a bubble. We’re in a revenue tsunami like nothing any of us have ever seen in our lifetimes.” Us  meaning founders and A-round investors, industry insiders who invest in, buy and sell companies early, based on “potential growth,” rather than real world, sustainable revenue models (that’s a very different game). Every time one of these “we don’t know how to make money yet” companies gets slapped with an inflated value before being sold off to a Facebook or a Google, what do you think the real game is? That’s right: maximizing profit for the team of early investors who got them all prettied up for their big market day. There’s nothing wrong with it, mind you. Calcanis isn’t a bad guy. His business model works for him, his team and the people who spent a couple of years building really cool technology. But because most of the game is being played pre-IPO, the further down the river you are in the investment chain, and the higher the “valuation,” the further away you are from the reality of what dividends that company can actually produce for its late investors. At least Zynga has a revenue model. It’s being run and managed like a real business. But most of these young companies either don’t, or what meager revenue model they have is not nearly on par with their market cap. That’s a problem.

$7.7 billion for Pinterest. I want you to think about that. I want you to think of the gap between that $26 million in actual annual revenue mentioned in the Forbes piece and its subsequent $7.7 billion valuation fantasy. Why not $300 billion? Why not a zillion dollars? Could happen, right? And maybe if you follow the same thinking, maybe if VCs keep telling us all day that this isn’t another dot-com bubble, we’ll all stop asking.

So one more time, in case you missed it earlier, from Moneyball:

Peter Brand: There is an epidemic failure within the game to understand what is really happening. And this leads people who run Major League Baseball teams to misjudge their players and mismanage their teams. I apologize.

Billy Beane: Go on.

Peter Brand: Okay. People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players, your goal should be to buy wins. And in order to buy wins, you need to buy runs. You’re trying to replace Johnny Damon. The Boston Red Sox see Johnny Damon and they see a star who’s worth seven and half million dollars a year. When I see Johnny Damon, what I see is… is… an imperfect understanding of where runs come from. The guy’s got a great glove. He’s a decent leadoff hitter. He can steal bases. But is he worth the seven and half million dollars a year that the Boston Red Sox are paying him? No. No. Baseball thinking is medieval. They are asking all the wrong questions.

Now here’s Justin again:

“To my mind, that’s exactly what’s wrong with what’s happening . We’re valuing teams, not revenue models.”

Let the wheels turn.

But because I am neither a VC nor a startup founder, maybe I have this all wrong. But then again, maybe all it is is just a big game of hot potato whose object is to keep all of the potatoes in the air while investors like me and you and our banks get sucked into collectively investing billions of dollars into fledgling companies that have yet to generate as much as 1% of their market cap in revenue.

The VC game might just be this: get in with a million bucks, get out with a billion, pass the hot potato on down to the suckers who see a score but haven’t figured out that unless these companies find a way to actually make money and pay investors back, it’s all basically a big fat ponzi scheme. What’s the secret? Everyone needs to stay focused on the imaginary bag of money at the end of the road, the Google dollars, the Facebook pesos. If the value of these startups keeps growing exponentially (like a Pinterest or an Instagram going from $5M to $1B+ in 18 months) we can all believe that we’ll become internet millionaires if we only invest in them when we get a chance. It’s that simple. The bigger the valuation, the more attention it attracts. $8B? Wow. Let’s all buy that dot-com lottery ticket!

Have you ever chatted with a VC or an angel investor? Nine times out of ten, here’s what you’ll hear: “We’re not investing in the company. We’re investing in the people. Because we know that even if this company doesn’t make it, eventually, these people will build something big. That’s what we’re really investing in. That’s how it works.”

We’re not really investing in the Brooklyn bridge. We’re investing in the architects. Unfortunately, to do that, you have to get people to back up your investment by buying the bridge from you, preferably for a lot more than what you paid for it. If 5x is good, 30x is better. How do you do that? By convincing them that your bridge is worth 100x of its actual value. The process behind that isn’t all that hard. The pieces are already on the board. All you really need to get things started is for someone with an imperfect understanding of where value actually comes from to write a piece about you in a publication like Forbes, Mashable or the WSJ. Five years ago, it was hard to get that done. Today, most big circulation publications also have online versions whose editorial standards are… well, lax. Their contributors aren’t always journalists or even analysts. Many are little more than glorified copywriters, underpaid to create content whose only purpose is to drive page views. A simple phone call from a senior exec promising an exclusive, or a friendly beer and a little attention can score you the story you want them to write.

Here’s another dose of reality: Companies like Google and Facebook are businesses, just like Nike and Apple. They have to be able to run in the black at some point. That means that there comes a time when buying $7B companies that don’t generate enough revenue to pay for themselves eventually comes to an end. That acquisition game only makes sense in the very short term on when it comes to sacrificing black ink for a strategic move that hopefully isn’t entirely Pyrrhic in nature. Growth through the acquisition of upside down companies just isn’t sustainable. Look at it this way: If you’re eagerly buying stock in a company valued at $15B that only generates $200M per year in revenue from, say, advertising, and inflates its market value by buying $1B startups with no significant revenue stream every six months to make it look like they’re growing and making big moves, it doesn’t take a genius to see where the value of that stock is really going. What’s the company’s plan, then? To keep borrowing money from investors? To get banks in so deep that they can’t pull out without taking  a huge hit? To keep acquiring overvalued companies with Monopoly money and hope no one ever decides to cash-in their chips?

This is part of the mechanism that creates bubbles.

No matter how many companies with zero revenue you acquire, math is math. Profits are profits. You can’t keep promising “next year” forever. And when company valuations start hitting the stratosphere and the gap between price and value starts to look like the Grand Canyon, people finally stop being stupid. That’s when things get dicey.

Think of it as a game of hot potato. What’s the objective? To keep the potato in the air as long as possible.  The way it works is nobody stops to look at the potato. Nobody wants to get burned or miss the next toss because then it’s game over. How do you keep people playing? You convince them that the longer the potato stays in play, the more value they will get out of it. And as long as no one flinches, as long as no one asks questions, as long as all the potatoes stay in play, the game goes on; people who know how to get in and get out at the right time make money and the rest keep on paying and playing, not realizing that what happens when the music stops is they find themselves holding a old wrinkled-up overpriced potato. They were so focused on playing the game that they never stopped to look at what they were really buying. It’s what happened with the first dot-com bubble, it’s what happened with mortgages in 2008, and it’s what is brewing here too.

We’re valuating teams, not revenue models.

Here’s some perspective: Apple sells iPhones and iPads and media all over the world. It’s the biggest tech company on the planet. It’s so big it generates profits on the same scale as the world’s biggest energy companies. Starbucks sells zillions of gallons of coffee in little cardboard cups at an insane premium, and every day, millions of people eagerly pay for the privilege of walking around the office with their logo in their hand. McDonald’s sells burgers and fries and soda in almost every country in the world. Every morning, there’s a line of people getting their McCoffee and Egg McMuffins at virtually every McD’s on the planet. Ford sells cars. Lots of cars. Cool cars, even. Levi’s, RayBan, Coca Cola, Amazon, they all sell something a lot of people want. They generate insane amounts of revenue. What’s Pinterest selling? What is its revenue model, to be worth $7.7B?

Oh yeah… it gets web traffic. 104 million visits in March. My bad. $7.7B it is then.

Based on that equation – or more to the point, that kind of thinking – this blog should be worth $2.7M.

Tell you what: here’s a bargain. If you’re willing to pay cash, I’ll sell it to you right now for $2M even. Any buyers? No? I didn’t think so.

There is an epidemic failure within the game to understand what is really happening. And this leads people who run Major League Baseball teams to misjudge their players and mismanage their teams.

That. And this: there is a disconnect between the message and what is actually happening.

Do yourselves a favor: think. Ask the hard questions. Don’t just read Forbes or some industry white paper and take what’s being sold to you as gospel. Don’t surrender to marketing religions or measurement cults or self-serving sales pitches disguised as business philosophies. Challenge whatever conventions that make you raise an eyebrow or gasp in surprise. If you don’t understand something someone just presented to you, don’t delegate. Don’t leave that room until you understand every aspect of it. Don’t make a decision until you have left no stone unturned.

Why should we invest in a company with no revenue model?

Why is a Twitter follower valued the same whether she is a transacting customer or not?

Why are these qualifications even relevant to this role?

Why is content king?

What do you mean, “we’re investing in people, not the company?”

What’s your angle in this deal?

Question whatever business thinking that keeps you stuck in the same cycle of “why aren’t we doing better?” Bad insights lead to bad decisions. It’s painfully simple. The way you run your business, the way you hire people, the way you invest your resources, even the things you believe are real because you read about them in a magazine, it’s all the same thing. Mistakes all come from the same place. You want to know what the hottest product is in 2012?  It’s bullshit. The stuff gets sold by the ton. It’s hotter than gold, oil and cocaine combined. It’s even bigger than internet porn. My advice: Buy something better.

Then again, I could be completely wrong. You tell me.

*          *          *

Here it is. A whole book on how to make social media work from a business standpoint. ROI is covered, along with a lot of process elements that tie back to it. If your favorite social business “expert” doesn’t seem to get this stuff yet, don’t feel bad about sending them a copy. Knowledge is never a bad gift.

CEO-Read  –  Amazon.com  –  www.smroi.net  –  Barnes & Noble  –  Que

Game-change: Moneyball and the reality of social business.

Moneyball - Courtesy of Sony Pictures.

I finally watched Moneyball over the weekend. I’m not a big baseball fan but it held my interest, partly because it was based on a true story and partly because the movie really wasn’t about baseball at all. It was about old thinking vs. new thinking, about industry politics vs. the heresy of innovation, about dinosaurs desperate to hang on to a failing model that sustains their livelihood even when that model is clearly broken, ineffective and no longer relevant.

The scenes in which Oakland As’ general manager Billy Beane (Brad Pitt) locks horns with his cadre of coaches and scouts over how to do more with less, about how to break the cycle of mediocrity plaguing their organization, about how to get results again is brilliant, not because of the writing or the acting but because it is spot on target. How do I know this? Because I have been in that meeting hundreds of times. Well, not that particular meeting, but in others exactly like it. And every week that goes by, I find myself sitting in that meeting again and again and again.

In the US, in Europe, in Asia, the same meeting goes on almost daily. The conference table is always basically the same, the fluorescent lighting too. The players, they’re the same as well, everywhere I go. Only the vocabulary changes, the industry lingo, but the meeting, it’s the same and it goes pretty much like this:

Billy Beane: Guys, you’re just talking. Talking, “la-la-la-la”, like this is business as usual. It’s not.
Grady Fuson: We’re trying to solve the problem here, Billy.
Billy Beane: Not like this you’re not. You’re not even looking at the problem.
Grady Fuson: We’re very aware of the problem. I mean…
Billy Beane: Okay, good. What’s the problem?
Grady Fuson: Look, Billy, we all understand what the problem is. We have to…
Billy Beane: Okay, good. What’s the problem?
Grady Fuson: The problem is we have to replace three key players in our lineup.
Billy Beane: Nope. What’s the problem?
Pittaro: Same as it’s ever been. We’ve gotta replace these guys with what we have existing.
Billy Beane: Nope. What’s the problem, Barry?
Scout Barry: We need 38 home runs, 120 RBIs and 47 doubles to replace.
Billy Beane: Ehh! [imitates buzzer]

What we see in this scene is a roomful of insiders with a century and a half of industry experience between them, and yet they haven’t figured out that their model is outdated, that their “experience,” is no longer enough to keep moving forward. They carry on day after day, season after season, doing the same thing over and over again, half-expecting a different result, but then again, maybe not. Worst of all, most of them have no idea what the problems plaguing their organizations actually are. A lot of it is just operational myopia. Some of it is also ego: they couldn’t possibly be wrong. All that experience and intuition, the entire industry’s decades-old model… how could things have changed that much, right?

And yet they are wrong, the model isn’t working anymore, and instead of listening to the guy in the room who sees it and knows how to fix it, they treat him like a punk. When he wants to do something about it, they push back. Hard. In Moneyball, he’s their boss. Imagine when he is just a Director or a VP, or even just an account manager. Imagine how quickly he gets overruled then. I’ve seen amazing people get shut down and pushed out of organizations over this sort of thing. I could give you names and dates. I could make you ill with true stories of stupidity and petty politics, of wasted opportunities and complete operational failures that turned what could have been huge wins for companies that needed them (and customers who demanded them) into case studies in wasted potential. And as tragic as  these stories would be, they are no different from the opportunities that will be wasted this week, and the next, and the one after that, always for the same reasons, always because of the exact same thinking and business management dynamics.

I see that scene, that meeting, that discussion being played out almost everywhere I go, especially when it comes to social media and social business: guys sitting around a table, treating social like it is just an extension of the same old traditional digital marketing game they all understand and desperately want to stick to. And so they make strategy decisions based on models that don’t apply at all to the social space, they insist on using measurement schemes that aren’t the least bit relevant to it or the business as a whole, and worst of all, they make hiring decisions that absolutely make no sense at all for the new requirements of social communications. Why? Because even though the game has changed, no one in the room wants to accept that it has. No one in the room wants to adapt. No one in the room wants to look reality in the eye and do what needs to be done to actually win. Talk about it, sure. Use cool new words like earned media and engagement, definitely. But actually change anything and adapt to a new model? Nope. Not happening. The change management piece that comes with social business integration, the piece that is absolutely vital to it actually working, that piece is still DOA.

Here’s another conversation that also goes on “offline” at every company (agency or brand) around the world right now in regards to hiring decisions that touch on social media management. Here it is again, through the filter of Moneyball:

Peter Brand: There is an epidemic failure within the game to understand what is really happening. And this leads people who run Major League Baseball teams to misjudge their players and mismanage their teams. I apologize.
Billy Beane: Go on.
Peter Brand: Okay. People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players, your goal should be to buy wins. And in order to buy wins, you need to buy runs. You’re trying to replace Johnny Damon. The Boston Red Sox see Johnny Damon and they see a star who’s worth seven and half million dollars a year. When I see Johnny Damon, what I see is… is… an imperfect understanding of where runs come from. The guy’s got a great glove. He’s a decent leadoff hitter. He can steal bases. But is he worth the seven and half million dollars a year that the Boston Red Sox are paying him? No. No. Baseball thinking is medieval. They are asking all the wrong questions. And if I say it to anybody, I’m-I’m ostracized. I’m-I’m-I’m a leper. So that’s why I’m-I’m cagey about this with you. That’s why I… I respect you, Mr. Beane, and if you want full disclosure, I think it’s a good thing that you got Damon off your payroll. I think it opens up all kinds of interesting possibilities.

Every company has a Peter Brand either on staff or sitting in a stack of CVs. Not necessarily in the sense that they are geniuses with statistics  but in the sense that they see the forest from the trees, that they see what needs to be done, but every time they open their mouths, they get shot down. Worse, if they open their mouths too much, they’re gone. And if their CV doesn’t have the bullet points and keywords that hiring managers were trained twenty years ago to find relevant, they don’t even get considered for the position.

If I see one more social media leadership position go by default to candidates with “big agency digital experience” or “big brand digital experience,” I am going to throw my pencil at somebody’s head. There is the medieval thinking in action, right there. There’s the primary reason why almost every social media program on the planet is failing to produce results, why three fourths of companies still can’t figure out how to calculate the ROI of their social media programs, why most brands see less than 1% of engagement from their followers and fans after the first touch, why “content is king” is failing, and why increasingly, “social media” strategy and budgets are shifting to ad buys on social networks. That’s right: For all the talk about earned media and engagement and conversations, social media account roles are starting to go to media buyers now. (Here’s some insight into it.) Everyone loves to talk the talk. Almost no company is willing to actually walk the walk. That sound you’re hearing is the banging of traditional marketing hammers pounding nails into social business’ coffin.

You want to know why most big brand social media programs aren’t gaining real traction? Why they don’t work without a constant influx of ad spending? Why nobody sticks around when the “free iPads for likes” promotions are gone? Start there: no one in the room gets it. No one in the room wants to get it. And when someone in the room does get it, he or she doesn’t keep their job for very long. You think most companies are going to hire, promote and support change agents all on their own?

So the real question is this: Do you want to actually score some real wins or do you just want to spend big marketing budgets and play at being a digital big shot?

It’s a real question. In fact, it’s the most important question you might ask yourself all year. Because the answer to that question will determine whether or not you still have a job in two years. No wait… I misspoke. The answer to that question will determine whether or not you have the job you want in two years, and yes, there’s a difference. A big one.

When you find yourself looking for your next gig (and you will eventually,) do you want to just be the guy who was SVP digital at (insert big brand/agency here) or do you want to be the guy who took (insert big brand/agency here)’s theoretical social media and social business programs, and turned them into the new industry standards, into the business model that everyone will be copying and basing theirs on for the next decade? It’s a real question. Which guy do you want to be? The dinosaur or the pioneer? If the answer is the latter, then are you going to have the huevos to go against the grain? To take chances on whom you hire, what kinds of programs you launch, where and how you invest your budgets? Are you willing to stick your neck out and do it right? Or is it more likely that you’ll just play it safe, hoping that the system will just carry you for another decade or two, that the CEO or CMO you will interview with next won’t notice that your job was basically to spend ad dollars and shuffle digital board pieces for the CEO’s monthly show-and-tell meeting?

Who do you want to be? What do you want to build? Do you want to just wear the jersey or do you want to win? Hold that thought. Here’s another key piece of dialogue from the movie, after Billy Beane’s gamble has paid off, after he has started turning some wheels in a big way. He responds to an invitation from John Henry, owner of the Boston Red Sox, who tells him this:

John Henry: I know you’ve taken it in the teeth out there, but the first guy through the wall. It always gets bloody, always. It’s the threat of not just the way of doing business, but in their minds it’s threatening the game. But really what it’s threatening is their livelihoods, it’s threatening their jobs, it’s threatening the way that they do things. And every time that happens, whether it’s the government or a way of doing business or whatever it is, the people are holding the reins, have their hands on the switch. They go bat shit crazy. I mean, anybody who’s not building a team right and rebuilding it using your model, they’re dinosaurs. They’ll be sitting on their ass on the sofa in October, watching the Boston Red Sox win the World Series.

And a couple of years later, they did.

So let’s talk about our world again for a minute. Let’s talk about what’s coming, about tipping points, about momentum: Ford not only hired the right guy (Scott Monty) a few years back but gave him the authority to build a solid program there. The result: some serious wins on just about every front, from customer perceptions to purchase intent to customer loyalty and recommendations. Even car design was impacted in 2010 by the importance of social communications in the Ford organization. Edelman Digital seems to be doing something similar (I keep running into some pretty solid folks there, notably Michael Brito and David Armano). Want to see something cool? This is one of the things they’re working on. Starbucks caught an early train with that too. So did Dell. What sucks is that in 2012, virtually no one else has even tried to keep up with them. For all the money being spent and all the “case studies” being pushed around the conference circuit, most companies are still fighting it, still refusing to accept that the game has changed – worse, trying to keep playing with old methods, with old thinking, with old, outdated skills and CV bullet points. But there will come a day when someone will be given the authority to build out this new model, when it will blow everyone out of the water, and when the blindfolds will have to come off. That day is coming. What side of change do you want to be on then?

Old thinking will not score wins here. Old tactics, old hiring, old measurement, they’re all wrong for these new marketing, communications and business models. They just don’t work anymore. If you don’t believe me, that’s fine. Keep watching your margins erode. Keep watching your digital dollars go to waste. Keep laying people off and outsourcing every last business function you can’t afford to keep in-house anymore. Keep pretending the world is the same today as it was five years ago, and that what you were doing five years ago will still be relevant five years from now. Whatever makes you feel better. Keep doing the same old thing that used to work, back before people carried smart phones and iPads. Keep thinking that the guy you just hired because he spent ten years managing digital for a fast-food brand knows fuck-all about building capacity and traction for a social media program, let alone produce concrete business results for you. Keep coloring the same old boxes with the same old crayons and see how far you’ll get.

_ Okay good. What’s the problem?

We need to fill a VP Digital role.

_ Nope. What’s the problem?

All right… Whatever. We need to fill a VP social media strategy role.

_ Nope. What’s the problem?

We need to hire someone with proven global digital management experience, Billy. Someone with Disney or Nike on their CV. Someone with serious digital campaign experience.

_ Nope. What’s the problem, Barry?

The problem is, we’re not growing our Facebook community fast enough, and our content isn’t seeing the numbers we want. We need a…

_ Nope. [Imitates buzzer]

Get unstuck. Watch Moneyball and let the light bulb go off in your head. Then go find your Peter Brand and hire the shit out of him before someone else does. If you’re lucky, you’ll save both your career and your company in the process.

*          *          *

Here it is. A whole book on how to make social media work from a business standpoint. ROI is covered, along with a lot of process elements that tie back to it. If your favorite social business “expert” doesn’t seem to get this stuff yet, don’t feel bad about sending them a copy. Knowledge is never a bad gift.

CEO-Read  –  Amazon.com  –  www.smroi.net  –  Barnes & Noble  –  Que

The 5 basic rules of calculating fan (or follower) value

The 5 basic rules of calculating the value of a Facebook ‘fan’

A question that routinely comes up in social media circles is what is the value of a Facebook fan? (The question also applies to the value of a Twitter follower, Youtube subscriber, email recipient, etc.)

Invariably, whenever the question is asked, some mathematical savant – typically a self-professed digital alchemist – produces a proprietary algorithm that has somehow arrived at answer along the lines of $1.07 (Source: WSJ) or $3.60 (source: Vitrue) or even $136.38 (source: Syncapse), and so begins the race to answer this now quasi-hallowed question of the new digital age. The lure: He who can convince companies that he can calculate the value of a Facebook fan might have a shot at selling them on the notion that fan the more fans they acquire, the more value they generate for their business. (You can imagine the appeal of answering the “what is the ROI” question by explaining to a company that 10,000 net new fans per month x $136.38 = a $1,363,800 value. At a mere $75,000 per month, that’s a bargain, right?

All that is fine and good, except for one thing: Assigning an arbitrary (one might say “cookie-cutter”) value to Facebook fans in general, averaged out over the ENTIRE breadth of the business spectrum, is complete and utter BS.

To illustrate why that is, I give you the 5 basic rules of calculating the value of a Facebook fan:

Rule #1: A Facebook fan’s value is not the same as the cost of that fan’s acquisition.

Many of my friends in the agency world still cling, for example, to the notion that estimated media value or EAV (estimated advertising value), somehow transmutes the cost of reaching x potential customers into the value of these potential customers once reached. Following a media equivalency philosophy, it can be deduced that if the cost of reaching 1,000,000 people is generally $x and you only paid $y, the “value” of your campaign is still $x.

A hypothetical social media agency-client discussion regarding EAV: “Using social media, we generated 1,000,000 impressions that we converted into followers last quarter. At $1.03 per impression/acquired fan, the total cost of the campaign was $1,030,000. The average cost of an impression through traditional media being $3.97, the estimated media value of your campaign was $3,970,000.”

Next thing you know, the client believes 2 things: The first, that the value of each Facebook ‘fan’ is either ($3.97 – $1.03) = $2.94 or simply $3.97 (depending on the agency). The second, that the ROI of the campaign is ($3,970,000 – $1,030,000) = $2,940,000.

So you see what has happened here: Through a common little industry sleight of hand, a cost A vs. cost B comparison has magically produced an arbitrary “value” for something that actually has no tangible value yet. In case you were particularly observant, you may also have noticed how easily some of the authors of the posts I linked to in the intro mixed up costand value. Ooops. So much for expert analysis.

A word about why cost and value cannot be substituted for one another when applied to fans, followers and customers: Cost may be intimately connected to value when you are buying the family car, but the same logic does not apply to customers as a) you don’t really buy them outright, b) they don’t depreciate the way a car does, and c) they tend to generate revenue over time, far in excess (you hope) of what it cost to earn their business.

Even with the cost of acquiring a fan now determined, why has the value of that fan not yet been ascertained? Rule #2 will answer that question.

Rule #2: A Facebook fan’s value is relative to his or her purchasing habits (and/or influence on others’ purchasing habits).

Illustrated, the value of a fan can be calculated thus:

 a)      Direct Value: If a Facebook fan spent $76 on your products and services last month, her value was $76 for that month. If a Facebook fan spent €5697 on your products or services last month, his value was €5697 for the month.

The value of a fan/transacting customer is based on the value of their transaction. It is NOT based on the cost of having acquired them.

Example:

- Cost of acquiring Rick Spazzyfoot as a Facebook fan: €4.08

- Amount Rick Spazzyfoot has spent on our products and services since becoming a fan five months ago: €879.52

Which of the above two € figures represents the value of that fan to the company?

(If you answered €4.08, you answered wrong. Try again.)

 b)     Indirect value: If a fan seems to be influencing other people in his or her network to become transacting customers (or increase their buy rate or yield), then you can factor that value in as well for those specific time-frames. Because measurement tools are not yet sophisticated enough to a) properly measure influence and b) accurately tie it to specific transactions, I wouldn’t agonize over this point a whole lot. As long as you understand the value of word-of-mouth, positive recommendations and the relative influence that community members exert on each other, you will hold some valuable insights into your business ecosystem. Don’t lose sleep trying to calculate them just yet. Too soon.

The point being this: Until a Facebook ‘fan’ has transacted with you (or influenced a transaction), the monetary value of that fan is precisely zero.

One could even say that if each fan cost you, say, an average of $1.03 to acquire, the value of a fan before he or she has been converted into a transacting customer is actually -$1.03.

That’s right: A significant portion of your Facebook fans might actually put you in the negative. Something to think about when someone asks you to calculate the “value” of your “community,” especially if you purchased rather than earned a significant portion of your fans and followers (it happens more than you realize).

Rule #3: Each Facebook fan’s value is unique.

Every fan brings his or her unique individual value to the table. One fan may spend an average of €89 per month with your company. Another fan might spend an average of $3.79 per month with your company. Another yet may spend an average of ₤1,295 per month with your company. Is it reasonable to ignore this simple fact and instead assign them an arbitrary “value” based on an equation thought up by some guy you read about on the interwebs?

Three points:

1. The lifestyles, needs, tastes, budgets, purchasing habits, cultural differences, online engagement patterns and degree of emotional investment in your brand of each ‘fan’ may be completely different. These, compounded, lead to a wide range of behaviors in your fans. These behaviors dictate their value to you as a company.

2.  Many of your fans may only do business with you only on occasion. Because of this, you have to factor in the possibility that a significant percentage of your fans’ value may fluctuate in terms of activity rather than spend. How many of your fans are not regular customers? How many do business with you each day vs. each month? How many do business with you once a quarter vs. once every three years? Are you figuring your on/off customer-fans into your value equation?

 3. Lastly, we come to the final type of Facebook fan: The one that doesn’t fall into the transacting customer category.  They might remain “fans” without ever converting into customers. Do you know what percentage of your fans right now falls into this non-transacting category? Do you really think that their value is $3.97 or $139.73 or whatever amount an agency, guru or consulting firm arbitrarily assigned to them? No. They clicked a button and left. Their value, until proven otherwise, is zero.

 With this kind of fan/customer diversity within your company ecosystem, you come to realize that arbitrary values like “the value of a Facebook fan is $x” can’t be applied to the real world.

Rule #4: A Facebook fan’s value is likely to be elastic.

Because the value of a Facebook fan is a result of specific purchasing habits (and impact on others’ purchasing habits), a fan’s value is likely to be elastic over time. If you aren’t familiar with the term, it simply means “flexible.” As in: the value of a Facebook fan will change. It will fluctuate. It will not always be the same from measurement period to measurement period.

Let me illustrate: A Facebook fan might spend $76 on your products and services one month and $36 the following month. This means that her “value” was $76 one month and $36 the following month. If next month, she spends $290, $290 will become her “value” for that month.

Because transaction behaviors change, the value of a fan is also likely to change.

You can average this out over time (the fan’s value might average out to $97/month over the course of a year, for example), or just total her value per month, quarter, or year, depending on your reporting requirements. That is entirely up to you.

Example 1: “Based on her transactions, the value of Jane Jones, a fan since 2007, was $2,398.91 in 2010. Thanks to our fan engagement (digital customer development) program, Jane’s value increased to $2,911.02 in 2011.”

Example 2: Chris Pringle’s average monthly value in Q2 of 2011 was $290.76. His average monthly value in Q3 of 2012 was $476.21. He is one of 17,636 fans we managed to shift from a basic package to a premium package via our Facebook campaign.”

Note: In order to figure this stuff out, you are going to have to either get creative with the way your CRM solution interacts with your Facebook analytics suite or wait until Social CRM solutions get a little more robust. Some are getting close.

Examples of exceptions (where fan value may be somewhat inelastic):

 - You are a bank and a fan’s only transaction with you is a fixed monthly payment.

- You are a cable company and a fan’s only transaction with you is a monthly cable bill.

- You are a publisher and a fan’s only transaction with you is an annual magazine subscription.

- Your fans don’t transact with you. They clicked a button and left. If their value was $0 a month ago, it is still $0 this month.

If your business charges for a monthly service that tends to not fluctuate a whole lot, chances are that the value of each of your fans will remain rather constant. This compared to a Starbucks, a Target or an H&M.

Rule #5: A Facebook fan’s value varies from brand to brand and from product to product.

If a fan/customer’s value can fluctuate from month to month and that value can vary wildly from individual to individual within the same brand or product umbrella, imagine how much it can vary from brand to brand, and from product to product.

Compare, for example, the average value of a fan/customer for Coca Colaand the average value of a fan/customer for BMW. (Hypothetically of course, since I don’t have access to either company’s sales or CRM data.) What you may find is that a fan’s annual value for Coca Cola might average,say, $1,620 per year, while a fan’s annual value for BMW might average $42,000. Why? Because the products are entirely different. One costs less than $3 per unit and requires no maintenance. The other can cost tens of thousands of dollars per unit and requires maintenance, repairs, not to mention the occasional upgrade.

Moreover, a single strong recommendation from a fan can yield an enormous return for BMW, while a single recommendation from a fan will yield a comparatively smaller return for Coca Cola.

You can see how the notion that the “value” of a Facebook fan can be calculated absent the context of purchasing habits, brand affiliations, fluctuations in buying power, market forces and shifts in interests and even value perceptions is bunk. Unless of course you find yourself being asked to transform cost into value. Less work. Easier to sell.

So why does this happen?  Tune in next week for Part 2 of this post, in which we will talk about why so many “social media gurus,” digital agencies and “industry analysts” still seem to be having trouble with something that should be pretty simple.

I hope this helped. From now on, if anyone seems confused about the topic of fan/follower/subscriber “value,” point them to this post.

Cheers,

Olivier

*          *          *

If you haven’t already, check out Social Media R.O.I.: Managing and Measuring Social Media Efforts in Your Organization. Lots of vital advice in there for anyone working with social media in a business environment. Makes a great gift to employees, bosses, contractors and clients too. You can even read a free chapter here: smroi.net

Customer Lifetime Value: one of the keys to measuring long term ROI, among other uses.

LTV infographic by Kiss Metrics

“People pay you. Not pageviews.” That pretty much says it all. (image source.)

This is as badass as it is self-explanatory. For those of you who don’t know how to estimate customer lifetime value (LTV, or CLTV), this infographic should be a pretty handy little tool. (Just ignore the Starbucks references.) Why is this important? 3 reasons:

1. When justifying an investment in a marketing program whose goal will be to acquire (create) new customers, you can sift through your customer data and determine what the average customer spend (their value to the company in terms of net revenue) should be over time. You can drill into demos or average out every customer category to arrive at a gross average – that’s up to you. This helps you set targets. If the investment is $100,000 and management expects a x10 return on their investment for a certain timeframe, you can now figure out what your net new customer target needs to be for this campaign by performing some basic 8th grade math. If the brass still isn’t sure about the value of the investment, you can make your case by projecting the lifetime value of net new customers rather than monthly, quarterly or even annual sales. For that alone, it’s a handy little set of equations

2. Good marketing is about more than customer acquisition. It also has to focus on customer development and customer retention. When making your case for a program that focuses on keeping existing customers from leaving, being able to present LTV/CLTV figures provides you with a compelling argument for the funding of such programs. (It is a lot more cost effective to develop and retain customers than to acquire new ones.) Use LTV to model for management what breaks in the conversion chain will cost the company in lost revenue over time, and loyalty programs will be a lot more likely to get a little more love. If you spend $5,000,000 to onboard 10,000 new customers per year only to lose 60% of them by the following year, you can see whether or not your marketing plan is in fact a leaky bucket. You can’t know what you don’t know. Calculating LTV gives you parameters with which you can properly analyze your programs’ efficiencies and inefficiencies, including long term ROI.

3. Once you know your customers’ overall average LTV, you can start attacking not only the net new customers piece (acquisition) and the retention piece (loyalty), but the development piece as well. Say your overall customer LTV average works out to be $14,099. Why not try and move that needle up to $15,001, then $15,100, then $15,250?  This is the purpose of the customer development side of marketing (or business development, even). Devise ways to grow wallet-share. Increase average spend per transaction (yield) and buy rates (frequency). [Remember FRY? That's what we're talking about right now.] Tracking this number not only gives you baselines from which to devise targets and tactics, but it also gives you a dashboard needle with which to gauge your progress AND revise long term sales projections.

Do you know how many product managers and CMOs know how to do this (or bother to do this kind of analysis even if they do)? Not many. If you smell an opportunity to suddenly become a whole lot better at your job and maybe even impress higher paygrades with your business acumen, it means your nose is working.

One quick piece of advice: Don’t just file this away for later. Do something with it. Print the infographic, start playing with the equations, and see what you come up with. Create a baseline. Play with projections. Sift through customer data to see if certain demos might be more receptive to different types of messages and offers. Then use the data; don’t just collect and report it.

Very big hat tip to Business Insider and Liz Scherer for starting the information daisy chain, and of course a big thank you to Kiss Metrics and @avinash for putting together such a clean, clear and concise infographic detailing the LTV calculation process.

PS: If you aren’t familiar with F.R.Y. methodology, it’s all spelled out here:

Score your own copy of Social Media ROI: Managing and Measuring Social Media Efforts in Your Organization (Que) just about anywhere business books are sold, if you haven’t already. The book is actually about a whole lot more than ROI and focuses on a lot of business fundamentals with applications reaching beyond the digital world. (The Chapter on F.R.Y. will be particularly helpful given today’s blog topic.)

You can also check out smroi.net to dig deeper into the book and even sample a free chapter, or let the reviews on Amazon.com help you decide whether or not it is worth the price of a turkey sandwich.

Cheers,

Olivier

Where are the professionals? Reflections on the #sxsmroi panel debacle.

I was scheduled to participate in a panel on Social Media and ROI at the #sxswi conference this week. My schedule being what it is, I couldn’t be in two places at once and had to make the painful decision last week of cancelling my trip to Austin altogether. As much as I was looking forward to finally making it to Sx and being on this panel, priorities are priorities. Muchas gracias to the panel’s organizers for having invited me to participate. In spite of what I am about to say here, I am very grateful to them.

Anyway. After days of reading tweet after tweet about how wonderful and fun SxSWi was, how much of a blast everyone was having, seeing pictures of some of my favorite people meeting up and smiling big for the camera, it was with a heavy heart that I logged into Tweetdeck for the #sxsmroi session Monday afternoon, in the hopes of at least being there from a distance. My expectations:  A great discussion, a professional discussion, an intelligent discussion about ROI and Social Media. After all, it’s 2012, right? This should be a mature topic. I released the book last year, the various presentations I put together on the subject have made their way around the globe, my blog posts have been read and read again, shared, retweeted and whatnot. ROI when it comes to social media is devastatingly simple to understand. Right?

I guess not. What I found myself confronted with instead of the intelligent session I expected was… a complete disaster.  I knew we were in trouble when I started seeing eager tweets about ROI being tied to “Return on Efficiency” less than 3 minutes from its start.

Let me give you a taste of some of the brilliant “insights” retweeted from this unfortunate session:

What’s the ROI of NOT engaging in SM? 

Asking if there is ROI for Social Media is like asking if there is an ROI of the telephone or a pencil.

If social is done well it builds trust. if done really well, it is true trust. then 2-way convo: speed and reach. 

There is an answer for CFO – if social has done well, it builds trust.

Seems like the new question is “What’s the ROI on coming up with a formula for ROI?

That’s right: The same nonsense social media “gurus” were selling on their blogs and all up and down the social media “speaking circuit” back in 2008, when social media started being integrated into business models.

So… 2008 goes by.

2009 goes by.

2010 goes by.

2011 goes by.

We are now in 2012. How is it that the same bullshit is still being spewed as “insight” on a #sxswi panel on ROI? How does this happen?

I know I couldn’t be there so I bear some of the responsibility, but I have to ask: Where are the professionals? Surely, we can find 5 people for a panel on Social Media and ROI who know what the hell they are talking about, right? I don’t even mean “experts.” I mean just normal professionals with a fair fluency on the subject, who can speak intelligently about what it is, how it is calculated, and even offer concrete examples to illustrate how companies are determining the ROI of key activities and channels on a specific timeline.

Just 5 or 6 people. That’s all.

No? Too hard? Really?

What happens if I get hit by a car tomorrow? Nobody can handle this topic? I don’t buy that. Where are the professionals? Sound off. Please, for the love of puppies, raise your hands and step forward. This crap needs to stop. Now. Today. And I can’t be the one carrying this flag. (Unless by some miracle, my book finally starts making its way to every single desk in Corporate America, which would be fine too. #NotHappening)

Back to more of the session’s brilliant “insights” on ROI and Social media. Brace yourselves for the worst because it is coming:

Social doesn’t always need to be quantified. Its not a spreadsheet metric only – trust, relationships, advocacy. 

Social extends beyond traditional ROI and you can’t quantify it on a spreadsheet.

You can’t put love and trust into a chart. Why? Because love and trust defies logical reasoning.

Because we lied and told people digital was measurable.

How do you put trust and love into a spreadsheet? silence 

Measuring digital is different because we’re the first generation doing it. 

We’re getting so granular with SM and trying to label it with a quantifiable ROI, that we’re missing the overall impact of it.

You don’t measure activity, you measure results. 

The minute we standardize in #smroi, we will fail.

Innovation is miles ahead of where we are in terms of measuring ROI.

Don’t spend all of your money trying to measure social ROI.

There’s no ROI for measuring ROI – it’s just too difficult

Just because I can measure something doesn’t mean I should.

That was what was being retweeted from a #sxswi panel on ROI. Maybe it should have been called “beating around the bush of #smROI for the fourth year in a row.”

It isn’t surprising then that about twenty minutes into the session, a lot of the back-channel chatter started looking a lot like this:

Did I really just hear someone at #sxsmroi say a lot of data when trying to quantify social ROI is unnecessary? …On to another session…

This panel could benefit by examples of ROI measurement. Some people in this room probably have to report that. #SxSMROI

I am shocked that the #SocialMediaROI panel at #SXSW isn’t giving people the real “How To Measure SM ROI” they came for. #sxsmroi

Have to wonder who the #sxsmroi panel is talking to. Definitely not business owners or people who sign the checks.

I think I’m glad I’m not at #sxsmroi because it’s not a ROI panel. Maybe call it SM Value or SM Efficiency panel, but it’s not a ROI panel.

Sorry #sxsmroi panel, you can’t send people out of the room w message that social isn’t measurable. It is and it’s critical

Disappointing panel at #SXSMROI same song & dance we’ve been hearing for years.

People walking out. You really think they were going to magically tell you how to measure SM ROI? #sxsmroi

In a nutshell.

In case you think that my having been there would have made a difference, think again. I wouldn’t have endured 45 minutes of that. Though I have never walked off during a panel at any conference anywhere, be assured that I would have pulled off my mic and walked out of this one. I would much rather meet up with people outside the session and answer their ROI questions directly (my purpose for attending events like this) than endure almost an hour of complete and utter bullshit that has no place at a conference the scale of #sxswi.

No offense to the couple of pros who were on the panel and whose comments were either not retweeted at all or simply not mentioned in this post. A few solitary bits of general, elementary ROI wisdom did find their way through the barrage of bullshit, but not nearly enough and certainly not driven by either adequate vigor or accompanied by concrete examples. So understand that I am not taking a blowtorch to the entire panel but rather to the balance of its outcome.

Here’s what really disappoints me: A full complement of professionals (with or without me) shouldn’t be that difficult to come up with right?  There shouldn’t have been a single dumbass comment retweeted from this session. Not one. So I ask again: Where are the professionals?

I am appalled.

As for those of you who walked away from that panel thinking it was wonderful, that Social Media ROI is a myth, channel-optional or even elastic enough to mean Return on Engagement, Return on Efficiency or Return on Conversation, do yourselves a favor: Search for every post containing the term ROI (or R.O.I.) on this blog and start there. Once you start to get what #smROI actually is and isn’t, feel free to spend $10 or $15 on the #smROI book (link below). That’s all you need to get started. The rest will come naturally once you start applying what you’ve learned here to the real world.

*          *          *

Here it is. A whole book on how to make social media work from a business standpoint. ROI is covered, along with a lot of process elements that tie back to it. If your favorite social business “expert” doesn’t seem to get this stuff yet, don’t feel bad about sending them a copy. Knowledge is never a bad gift.

CEO-Read  –  Amazon.com  –  www.smroi.net  –  Barnes & Noble  –  Que

Strategy Reminder: Shifts in Global Media Consumption

This isn’t brand new data, but I came across it last week and thought it would be cool to share here. No need for me to write a 30,000 word blog post or white paper on what it all means. I will give you the main bullets but the graphics kind of speak for themselves. You should be able to connect the dots all on your own.

Above: Global Media Consumption per week 1900-2020. What do you see?

1. The main line: Global media consumption doubles every 25 years or so. Bear in mind that there are only 24 hours in a day, so that curve eventually levels off (even with second and third screens… but we won’t get into that today).

2. The nature of media is changing: 5 years ago, 50% of media was digital. In 8 years, that ratio will be 80%. Think about that and what it means.

3. Individual performance of specific media:

Print is steadily shrinking and has been since the 1940s, contrary to popular lore about the internet killing print. This is not a new phenomenon. It’s accelerating, sure, but it isn’t new. TV started that trend long before most of us were born.

Analogue TV and radio formats have been replaced by digital formats. Radio has been relatively flat for a very long time. TV saw enormous growth from 1940 to 1980 but has been relatively flat ever since. Note that this graph doesn’t look at the growth of channels (channel proliferation and fragmentation, but consumption only. Adding 100 new TV and radio channels per day wouldn’t affect consumption).

Outdoor has been relatively flat for over a decade, as has been cinema.

So what’s growing? You already know: Internet, mobile (wireless) and games.

Speaking of mobile:

What this graph tells us:

Mobile cellular subscriptions are steadily increasing worldwide each year, as is the number of internet users. Active mobile broadband subscriptions are also growing quickly. That’s the black bar on the graph. It isn’t even there in 2006 but by 2010, it already reaches about 1 billion.

What’s flat (or close to flat?) Fixed broadband subscriptions and fixed telephone lines.

What does this graph show us?

1. Look at the relationship between internet users (green) vs. Fixed broadband subscriptions. What do you see? There are far more internet users than broadband subscriptions. Part of the reason for that is that one broadband subscription may serve an entire household or office, but there is more to it than that: Mobile broadband. More and more people now access the web through mobile devices. It isn’t to say that PCs are dead, but this indicates a pretty key shift in how people (it’s okay to call ourselves consumers) now access content and information.

2. Look at the relationship between fixed and mobile broadband (pink and black, respectively). In 2006, fixed broadband was it. By 2008, they were essentially tied. By 2011, mobile broadband was double the size of fixed broadband.

Bear in mind: Mobile broadband subscription = 1 user. Fixed broadband = several users. It’s simple math. Regardless of the apples to oranges comparison, growth is growth. Shift is shift. 75% of media will be digital in just 4 years. 80% of it will be digital in 8 years. Mobile devices are becoming the interfaces of choice for digital content. If you aren’t building your business processes and designing your content with this in mind, don’t blame “the economy” for what is about to happen to your market share.

Now let’s look at a quick graph on the relationship between age and internet use in developing economies vs. developed economies:

 Now look at this:

See the change in just 5 years?

Here’s another one that should make you think a bit, especially if your company has a global footprint:

Three things:

1. Globally, 45% of internet users (regardless of the interface) are under the age of 25. Though it may be obvious to most of you, don’t take for granted that every CEO and CMO has figured this out yet: It doesn’t matter if your typical customer is mostly over the age of 35. In 10 years, those 25-year-olds will be potential customers and they will expect you to do business the way they want you to do business. Better start working on them now. And while you’re at it, better start working on bringing every aspect of your business and its marketing/communications up to speed. You wouldn’t believe how many senior executives completely miss this.

2. Developing economies have some catching up to do when it comes to internet use, but they are quickly closing the gap.

3. Look at the growth of 3G penetration between 2009 and 2014: From 39% to 92% in Western Europe. From 9% to 40% in Eastern Europe. From 38% to 74% in North America. Japan hits 100% two years from now. 100%. (Japan is the model, by the way.) Even developing regions like Africa, the middle East and AsiaPac (minus Japan) are quadrupling 3G mobile penetration in the next two years. We are moving towards 80% of all media being digital. Mobile devices are increasingly becoming the digital interface of choice for consumers. Connect the dots.

Here’s a thought if you still don’t understand how this applies to your business: Follow the money. If it isn’t clear why any of this matters or even where things are going, look no further than shifts in advertising budgets in relation to digital and other media:

What do you see? Ad spend is flat in print (actually shrinking a bit) while digital ad spend is steadily growing. Every graph that compares online ad spend to other types of media ad spend look basically like this. If you don’t understand why this is happening, the graphs further up the page will help connect the dots.

Here’s another graph that ought to make you think about how your media planning strategy should already be shifting:

 What this graph shows is the point where online video wins the attention war and TV begins to recede. Same content but different interface, different medium, different level of user control. 2019 will be here before you know it. What are you doing today to prepare for the television set’s Waterloo? From media buying to content production and distribution, are you sitting on your hands talking to analysts about future trends or are you staffing up with people who understand this and know how to prepare you for it?

Let’s continue with today’s #graphfest. This ought to shed some light on what is happening on the interface front:

The 411: Desktop PCs are flat and mobile PCs (laptops) are growing. No surprise there. Also no surprise as to the growth of smart phones and tablets. But check this out:

Smart phones sales overtook desktop PC sales in 2008 and will take over mobile PC (laptop) sales in 2013. That’s next year.

Tablet sales will overtake desktop PC sales (that boxy thing taking up space in your employees’ cubicles) next year.

If you are an executive, go for a walk around your offices and ask yourself: What decade are you operating in? In fact… What century are you operating in? Look at your business processes, internal collaboration, media planning and productivity. Go spend a day at a media conference or tour your local coffee shops. Ask yourself if your business is operating in a bubble or if it is as technologically and strategically competitive as it could be. Be honest with yourself. Tip: If the average twenty-something hipster lounging around at Starbucks is better equipped than your average middle manager or business development team, the answer is no. Here’s another one: If your business isn’t creating apps or content specifically designed for these new devices (let alone social channels), the answer is also categorically no.

Every time I run into an executive working on a presentation on a plane, I look at what kind of tech they use. Nothing against Lenovo and IBM (great companies) but whenever I see one of those boxy black thinkpad laptops with the little red button in the middle of the keyboard, I cringe for that poor sap whose boss forces to work on outdated tools. It’s 2012. Shape up. You don’t see 20-year old tech winning on the racetrack, the field, the court or the links, right? Business is no different from sports in that regard: 20-year-old tech doesn’t give anyone an advantage. All it does is make you less competitive. Stop doing that to yourself. Move on. Look forward, see what’s coming and get unstuck.

Here’s a thought: When the world is changing faster than you are adapting to that change, it’s time to start a) worrying, and b) doing something about it. The idea isn’t even to eventually catch up, mind you. That’s a defensive position, a survival position. The idea is to actually get ahead of that change. That’s where the real competitive advantage is. Survival is a nice default position, sure; many businesses aren’t even there. But with only maybe 5% more thought and work than it would take to just play catch-up, you can shift from being just an “also in” company to becoming the leader in your industry or category inside of 5 years. That sort of surge in competitiveness doesn’t happen by accident. It takes will, foresight and initiative. That takes leadership. Real leadership. And sorry to have to tell you this, but real leaders make it a point to know their shit. “I don’t understand this new digital stuff” isn’t leadership. It’s an urgent call to action.

One last little media-related graphic to close today’s post and help you get your bearings:

Hopefully, this post will help you (or your boss) connect the dots between today and tomorrow a little bit. Something to think about: Becoming more “social” is only part of the shift that is taking place in media. It’s important, vital even, but without understanding how media as a whole is evolving, being “more social” probably won’t do most companies a whole lot of good. We’re seeing that already. There is a much bigger field, and the more of that field you and your senior leadership see, the better equipped you will be to not only survive the next decade but come out of it stronger and more competitive than ever. That’s the goal, right?

Plan beyond next quarter and/or year.

Get IT more involved in the day to day discussions that affect your business.

Revamp your HR’s hiring parameters.

You aren’t necessarily going to become a digital business, but your business does need to be as effective in the digital space as it is everywhere else. Welcome to the great reshuffling of the Fortune 5000 world.

Cheers,

Olivier

PS: I will be speaking about this in Brussels at the end of the month for Marketing Day Belgium. If you happen to be around and want to discuss this in greater detail during the Q&A or after the session, let me know. I look forward to it.

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