Apple Enjoys Impenetrable Reputation … In Spite of Itself

April 30, 2012 § 1 Comment

As you may have seen over the weekend, the New York Times published an attention-grabbing story on how Apple avoids billions of dollars in corporate tax obligations by channeling profits through a complex, multi-national maze that last year saved its investors $2.4B.  In fact, as I write this post, it’s the main topic of discussion on CNBC.

I don’t begrudge Apple for mitigating its taxes – that’s simply good business – but it’s an eyebrow raising story.  Not just because of the great lengths Apple goes to, to avoid what seems to be the spirit of the tax code, even if it’s operating well within legal boundaries, but because of how quickly and fervently its customers (of which I am one, several times over) quickly come to its reputational aid, allowing it to enjoy a double-standard that other companies can only dream about.  Arguments in Apple’s defense include such gems as:

“I’d rather have them allocate their capital than the government.”

And, “better to invest the dollars back into product innovation than into the government’s coffers,”

And perhaps my favorite, “Apple’s tax strategy allows them to keep prices lower.”  Lower prices!?  Really? 

Undoubtedly, Apple can find uses for its cash that are more in alignment with its investors’ interests — that’s not my point.  My point is the bullet-proof halo that Apple has earned after years of producing beloved hardware and software products (from Macs to iTunes to iPods to iPhones to iPads … and now, iCloud), that allows it to walk the line of the tax code and possibly even corporate integrity, while maintaining its status as a customer-focused, community-friendly company.  In fact, Apple’s “reality distortion field” is so mesmerizing and thick that it persists despite a growing rap sheet of behavior that at best underscores Apple’s imperfections, and at worst demonstrates behavior inconsistent with that of a company that is truly focused on its customers.  A few, top-of-mind examples:

  • The signal to the iPhone 4’s internal antenna is distorted when you hold it in the palm of your hand.  Jobs’ initial response was to instruct us not to hold it that way (Apple later offered vouchers for free cases that compensated for the interference, but never fixed the root cause of the problem)
  • iPhone users have unknowingly had their web browsing tracked by Safari with a loophole that let Google install cookies (Apple later fixed the issue with a software patch)
  • Apple has been accused of addressing viruses on its own schedule, putting millions of users at risk
  • While considered by many to be a stroke of operational genius, Apple’s ruthless supply chain strategies tie up critical components needed by competitive devices, arguably suppressing competition and consumer choice
  • Steve Jobs bucked the generally accepted trend of driving innovation by listening to customers when he said, “a lot of times, people don’t know what they want until you show it to them” (although it’s hard to argue with the company’s exceptional track record)
  • And now, extraordinary tax avoidance

Bravo, Apple!  You have successfully constructed a virtuous cycle of product and reputation that insulates you from missteps and PR gaffes.  But you’d better keep the cool products coming, or you’ll quickly find yourself back on earth with everyone else.

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The anatomy of a strategist

February 19, 2012 § 1 Comment

ImageFirst of all, what IS strategy, anyway?  Ask 10 people and get 10 answers.  But I’ll answer the question this way: strategy involves assessing an organization’s internal and external factors to establish the most desirable future direction, and to determine a course of action and an investment of resources to get there.  Strategy can be “macro”, such as when setting a company vision, or tactical, such as when deciding whether, where and when to open a new manufacturing facility.

Now, after you get some strategy projects under your belt (and I’ve seen more than my fair share, having been in and around the field for over two decades), you start to notice some patterns related to successful strategy projects and the people who run them.  You also begin to realize that the patterns overlap greatly, meaning, great strategists are ones who excel across the lifecycle of a project, and successful projects are ones that leverage the full capability of a top strategy talent.  Being thoughtful about these characteristics can be helpful in many ways … when project planning, when staffing a team, and when recruiting and hiring, for example.  And if you’re an up and coming strategist, the reverse is also true – when deciding to whom you’d like to entrust the next few years of your career.  So what are these characteristics?

  • A good strategist is curious and aware:  sometimes, strategy is about optimizing what already exists.  But often, it’s about recognizing what is possible, both good and bad.  Ninety-nine percent of an organization’s headcount is dedicated to operating the business, so it becomes the responsibility of the strategist to look beyond current trajectories (sales growth, immediate competition, profitability, and so on) to identify new pockets of growth, as well as unforeseen threats.  One approach to this is “scenario planning”, wherein the strategist will extend observable trends into a longer-term timeframe, and then assemble them into 4-5 plausible (even if improbable) combinations that would meaningfully impact the businesses, and that call for a specific, proactive response.
  • A good strategist is comprehensive:  a classic mistake is to fail to consider options that simply don’t come to mind – to not think broadly enough.  So classically trained strategists often ask themselves a question to test the completeness of a set of options, which is, “is it Mutually Exclusive and Collectively Exhaustive?” (or MECE, for short).  What the MECE test does is it forces the strategist to think broadly enough that all primary possibilities are evaluated.  For example, a strategist may investigate both pricing and volume to properly diagnose revenue trends, or may fully consider the tradeoffs of buying vs. licensing vs. building vs. partnering to deliver a new product on schedule.  In any case, the goal is to not let the best option go unnoticed.
  • A good strategist is visionary and bold:  status quo, and even evolutionary moves, should always be among the options considered, but if the strategist doesn’t juxtapose some creative, extraordinary alternatives, then she’s taking the easy road.  I sometimes say that if the “currency” of the Finance department is dollars, and people for HR, then the Strategy function should be trading in big ideas.  How might the organization’s underutilized assets be deployed in new ways?  What new markets make sense to penetrate?  What new product lines could define the business’s direction in the next ten years?  A good strategist will understand the tradeoffs between current and new pathways, and help the executive team maintain a healthy balance between the two.
  • A good strategist is analytical:  I sometimes notice people confusing “strategic thinker” with “analytical thinker”, and they are, in fact, two very different types.  A strategic thinker, in my book, is someone who can synthesize multiple inputs (like competitive intelligence, customer research, and company capabilities) into meaningful implications and recommendations, whereas an analytical one will know how to shape raw data into actionable insights.  One knows what questions to ask, and the other knows how to answer them.  Your most versatile people, of course, will be capable of both.  That said, not everyone is destined to be.  There’s a reason that top strategy consulting firms staff “analyst” and “consultant” roles.  Some successfully migrate from one to the other, and even to the lofty rank of partner, but very few do.
  • A good strategist is, what I call, multivariate:  meaning, she can pick apart a situation from multiple angles and perspectives.  The proposed strategy may make the most economic sense, but do customers give you “permission” to expand into an adjacent growth area?  Operationally, do you know how to deliver and support the new concept?  Will your sales representatives welcome the new offering into their portfolio?  Does Marketing know how to promote it?  In other words, a good strategist will translate the theoretical down to the practical.  A strategy that isn’t implementable, or that hasn’t considered the operational implications, isn’t worth much more than the PowerPoint it was presented on.
  • A good strategist is persuasive:  the more significant the prescribed change (assuming status quo is not the preferred path forward), the more challenging it will be to bring others on board.  This is for good reason – change doesn’t come without risk and uncertainty.  And unless your organization is sitting on top of a “burning platform” as Nokia’s newish CEO Stephen Elop famously said, it’s not easy to make a different path look better than the present one.  An effective strategist, then, can’t declare victory at the Board meeting’s end.  Results are the only reward that count, and those come only after decisive agreements have been made and resources (including dollars, people and executive oversight) have been committed.  To earn that, a strategist must understand and adapt to the factual and emotional starting point of each decision maker, and the dynamics of how the organization makes decisions.  Whether the successful effort is fact-based or an impassioned plea, whether it’s supported by a carefully scripted slide presentation or an open ended conversation, and whether it’s achieved through a carefully sequenced series of one-on-one discussions or a group meeting, all depends on an up-front decision making analysis.
  • A good strategist is energetic (even if sleep deprived):  Strategy is a thinking-oriented discipline, obviously, but that doesn’t mean it’s any less demanding on the body.  In fact, I’ve heard that while the brain accounts for only 2% of a person’s body weight, it demands 20-30% of calories consumed!  So if Strategy demands more of the brain’s capacity, it may also demand more energy.  I can’t back that with science, but my point is that Strategy is demanding, even if only in terms of the time commitment required.  The environment that shapes and impacts strategy is never at rest, and so a good strategist is “always on”.  Consuming information.  Interpreting data.  Communicating insights.  Shaping discussion and decisions that can have a material effect on the direction of an organization.  Fielding questions from senior leaders looking for a balanced perspective on internal and external events.  It’s equal parts thrilling and exhausting, and a good strategist will be prepared to make a real commitment to the proactive and reactive nature of the practice. 

If a good strategist will excel at one or a few of these things, then a great strategist – or strategy team – will master them all.  And so will a successful strategic initiative.  Use this as a checklist the next time you’re filling a strategy position, or hiring a consulting firm, or managing a strategic initiative.

The Verizon Wireless “Convenience Fee” and the End of Capitalism as We Know It

January 1, 2012 § 9 Comments

The concept first hit my radar when the “profit challenged” airlines decided to offset their personnel costs by imposing baggage fees, charging up to $50 to stow and deliver them.  Travelers complained, and the media had a field day – how dare they charge us!  Airlines held their ground (with the exception of Southwest, which never initiated the fees), and after the latest wave of bankruptcies, the charges have contributed to the restoration of industry profitability.  Then several banks (particularly the large, publically traded ones) announced that, in response to new regulations that restrict the profit they can make on electronic transactions, they would levy new monthly fees on debit cards.  Never mind that customers always had the option to do their banking elsewhere, including many community banks and credit unions.  The well-intentioned media and special interests came to the consumers’ aid once again, and rather than continue to face the negative publicity onslaught, most, if not all of the banks, relented.  No profit for you!

And now this.  Three days ago, Verizon Wireless (VZW) disclosed that customers who chose several bill payment methods (including phone and Internet) would be assessed a $2 “convenience fee” per transaction.  Customers who chose alternative channels (such as snail mail or online bank bill pay), or who signed up for VZW’s auto-pay feature, would avoid the fee.  But within hours, the media and special interests arrived on the scene again; this time joined by the FCC, which threatened an investigation.  And like the banks, VZW relented within hours.  What if VZW had simply discontinued its higher cost payment options – would it have faced the same ire?

So what’s the message here?  Are companies supposed to feel ashamed or immoral for making a profit, or for increasing them, by charging a fare rate for the services they provide?  In a competitive, capitalist market, is it not necessary to continuously innovate and to seek new ways to improve the amount and quality of the services they provide, and as these enhancements contribute their cost basis, are they not entitled to pass along these costs to their customers who are willing to pay?  After all, these are for-profit enterprises, aren’t they?  And — rhetorical question alert — don’t customers always have alternatives to paying these fees, including:

  • Comply with the conditions for “free” (such as with VZW’s free bill payment options)
  • Switch to a different provider
  • Stop using the service

What, suddenly it’s our right as citizens to have wireless service, and even more so, wireless service without extra service fees?  Since when is profitability such a problem?  For those who cling to the “greater good” argument, how would they respond to VZW’s (and all companies’) lesser ability to hire new workers without continuous profit growth?  I’m sure my assumptions are flawed, but for simply math, let’s assume 20% of VZW’s 100M customers use one of the implicated bill payment channels, and that VZW makes as much operating profit on the “convenience” fee as Verizon does overall.  On that basis, VZW could afford to hire an incremental 1,800 employees earning the median U.S. household salary, on a fully loaded basis.  If these employees helped create more growth for the company, VZW could hire even more.

Don’t get me wrong – I have no problem with consumers in a competitive, free market taking their business elsewhere, or in the case of Verizon, avoiding fees all together by complying with any of the company’s free options.  But when advocacy groups, the media, and regulators pile on together, and create the impression that the company has attempted some moral misdeed, well, that’s where I draw the line.  Come to think of it, I’m not even clear to what extent the customers themselves were even bothered by VZW’s fee — with all the noise coming from other, more organized groups, we never even got the chance to hear from them directly (other than a certain number of Tweets from some of the more vocal among them).  With only hours between the announcement and reversal of the fee, I’m not convinced the average VZW customer even had a chance to learn about it, let alone to consider how they felt about it!

Look, I know my rant may be unpopular.  I’m all for consumers making their preferences known, and even better, taking action with their wallets.  In a competitive market, this works especially well, and we have several layers of government and special interests to ensure competitiveness.  But when a business in a competitive market is vilified for imposing fees, especially when it gives customers a free alternative, I just don’t get it.  Healthy, growing businesses hire people, give raises, and pay taxes.  Isn’t that important too?

Taken to the extreme, I can see this slippery slope gaining momentum, and before you know it, our economic machine could edge its way closer to the European model, with heavier regulation and less commercial fluidity.  Even if this doesn’t occur through formal methods, it could happen through PR pressure applied by special interests or individuals in high places with “an axe to grind”.  But with many Euro Zone economies presently at risk of default, it’s hard to make the argument that their model is more desirable.  I’m happy sticking with good ol’ fashioned, American capitalism, if you please.

Google’s acquisition of Motorola Mobility more than just a patent play

August 15, 2011 § Leave a comment

The buzz around the GOOG/MOT deal is all about the 17,000 additional patents that Google will have both to innovate its platform, and maybe more importantly, to defend itself against the onslaught of suits currently making their way across the mobile industry.  I certainly don’t dispute the importance of the patent portfolio.  But I think Google has more up its sleeve, namely:

  • Access to a tightly controlled, standardized development environment.  Google has been criticized for the freedoms it has granted developers in the past, essentially letting them run amuck.  Great for independent developers, and perhaps one of the reasons for Android’s popularity.  Maybe even a necessary ingredient for the Android app universe to catch Apple’s.  But now that they’re close enough to parity, the downside of the approach has become more apparent.  Major upgrades to the Android OS  have to get pushed to multiple environments, not just one.  Innovation is slowed.
  • Android’s openness has also cost the platform in the area of security.  Too hard to tack down the many implementations of its software.  The closed-loop environment with Motorola handsets should allow Google to batten down the hatches, so to speak, and create a model environment for other OEMs.
  • Google offers to handset makers for “free”, with the understanding that broad distribution will ultimately lead to advertising opportunities.  Google may be thinking it’s time to pay the piper, and a tie-up with Motorola will enable it to experiment with tightly integrated advertising solutions over the OS.

No doubt, there are risks to consider.  With Motorola under its wing, Google could alienate other handset makers just enough to drive them closer to rivals, namely Microsoft (despite Google’s promise to run the unit independently, and to maintain its commitment to open development).  Similarly, MOT’s cable set top box business now falls into the hands of a parent with a track record of attempting to challenge the strength of established cable and telco players.  But if they balance their strategy right, and I have no reason to suspect they won’t, they will maintain their good standing, and improve their lot in the mobile arena.  I count this deal as a strategic “win” for Google.

The Periodic Table of SEO – an Infographic

June 6, 2011 § Leave a comment

Infographics don’t usually impress me, but this one from Search Engine Land, that it calls “The Periodic Table of SEO Ranking Factors”, is pretty clever and handy.  It’s a good reminder that SEO is an involved, multi-dimensional effort that takes continuous care and curation (as a side note, that ensures that it isn’t “free”, just as PR is never free once you consider the full cost of delivery).  You can download a full-page PDF here.

 

Microsoft’s Rumored Xbox Live Announcement Not Likely to be a Shocker

June 6, 2011 § Leave a comment

UPDATE:  Microsoft’s announcement is in, and the winner is …
A platform enhancement.  Albeit a pretty slick one.  Xbox 360s powered by Bing and a subscription to the Live Marketplace will be able to use voice recognition to help users find access to content from sources such as Hulu Plus, Netflix, and ESPN.  The capability will extend to live programming in regions where Microsoft has the required partnerships, such as Canal+ in France, Sky TV in the UK, and FOXTEL in Australia.  It’s a given that the proliferation of content across platforms and media genres (linear, on-demand, games, etc.) poses a user experience challenge, and Microsoft’s announcement offers a unique solution.  But it’s one of many, as many incumbents and newcomers seek to deliver the “ultimate programming guide”.

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Microsoft is expected to make a major Xbox LIVE – IPTV related announcement today at the E3 gaming conference.   The rumors range from a Mediaroom enhancement (the platform that AT&T’s Uverse service uses to bring IPTV to its customers), to an a la carte service (competing with Netflix and Hulu Plus), to a full-on linear TV subscription service.  A few reasons why I don’t expect Microsoft to announce the latter:

  1. The live TV business is a monster to get into.  Huge fixed costs, and programming is getting even more expensive (not that Microsoft can’t afford it, but why would it?)
  2. The Xbox may be a trojan horse on which to launch a video service, but how many homes have multiple Xboxes connected throughout their home?   If Microsoft were planning to compete with linear TV, it would need distribution (or a hardware extender, perhaps), that it doesn’t have today
  3. Moving from platform to B2C service would put it in contention with AT&T and any future partners it hopes to add.  Counter to Apple’s, Microsoft’s strategy has always been to be the platform.
  4. Live TV is a competitive industry.  In any given market, you have a cable company, perhaps a fiber option, and a couple satellite providers, not to mention over-the-air, and over-the-top alternatives.  Microsoft, or any company wishing to enter the space, would need some pretty thick skin, if they hope to be successful.

So, we’ll see what they come up with, but I don’t think it will be the shocker that some are predicting.

Ecommerce could be Facebook’s next big business … if it addresses a few things

March 9, 2011 § 2 Comments

Much hoopla has been made about Facebook’s ecommerce opportunity.  Just as it has quickly earned a strong position in display advertising, and has grabbed share in virtual goods and payments, the industry pundits now say that online commerce will be its next billion dollar business.  The tools already exist, in fact, for merchants to integrate commerce directly into their Fan Pages, obviating the need for customers to link out to conduct their business.

But I think Facebook, and the merchants who sit atop its platform, are going to have to go beyond a “build it and they will come” approach, if they expect to reap the full potential of this new revenue stream.  I recently conducted an informal poll to gather insight on people’s attitudes and intent when it comes to Facebook commerce.  While there’s all sorts of caveats here, ranging from small sample size to survey bias, I think the findings are directionally useful – absolutely no one had the desire to buy traditional goods or services from within a Facebook page.  The rationale varied, but tended to fall into two themes: distrust and value.

Thanks in part to continuous headlines accusing Facebook of privacy violations (or of making it difficult for users to control their privacy settings), many people, it seems, are hesitant to relinquish any further data to the service.  And purchase decisions can be as revealing and personal, if not more so, than just about any other category.  Others simply don’t appreciate the value of buying through Facebook.  Some even assume that the inventory and buying experience will be a slimmed down version of what’s available on the merchant’s own site.  Facebook’s ecommerce strategy, therefore, should seek to resolve these barriers.  For example:

  • They should strengthen their online privacy policies.  A tall order, perhaps, for a data-oriented business model, but low hanging fruit include simplifying privacy controls, and being more sensitive to how its constituencies will react when it considers new features with questionable protections.  Remember Beacon, and the poor guy whose engagement ring purchase was revealed to his soon to be fiancé prior to the proposal?
  • Merchants would be advised to offer a comparable (if not unique) selection within Facebook.  If strategy or availability dictates otherwise, go deep on the specific categories that are offered there.
  • Product reviews and brand suggestions could be more personalized within Facebook (as compared to outside of it) if users opted-in to a higher level of disclosure.  For instance, Facebook could give buyers the option to share a purchase with their network anonymously or in the aggregate on external pages, and openly within Facebook pages.  So if you were shopping for the Motorola Xoom on Amazon.com, you might see that 15 of your friends “Like” the item or even purchased it, but if you shopped for the same gadget within Facebook, you could see specifically who those friends are, whether they posted any feedback, and so on.  Today, there’s no such distinction.
  • There’s no denying that credit cards are a suboptimal payment method for ecommerce, and even if you keep your card on file with multiple merchants, managing all those logins and passwords is a major pain.  Facebook’s payments platform, originally implemented to take a bite out of the virtual goods market, will be expanded to make real world purchases a whole lot easier.  Think PayPal for Facebook.
  • Facebook will ultimately host thousands (millions?) of commerce pages, likely positioning it as the broadest “store” on the Web.  As an aggregator, it could structure a rewards program with greater benefit than what’s offered by sellers individually.  Tied to its payment platform, points could be redeemed across its participating merchants, both physical and virtual.  It could also choose to award status and privileges to users who make purchases within its pages.  Facebook has done little to date with status awards, but history shows (recall Yahoo! Answers) that they can be extremely motivating.

Ecommerce could be a big deal for Facebook, and in fact, may be necessary to justify its massive valuation.  But to reach its potential, it should address its privacy issues, and seek to offer advantages over merchants’ own sites.

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