Mohit Garg : "Bourne To Be Wilde" or The MacroView

US Credit Rating Downgrade- The S&P AA+ Club

2011-08-07T21:18:00.000-07:00

Executive Summary: Standard and Poor's downgrade of the US credit rating can be evaluated in terms of signaling power, economic comparisons of countries, and a review of the members of the S&P AA+ rating club. We take a brief look at two countries with sovereign debt ratings the same as that of the United States. From the Desk of If-It-Talks-Like -A-Duck-But-Does-Not-Walk-Like-A-Duck... What do you do? Worry about a double dip instead!

For a little while, folks were focused on the possibility of the US economy slipping back into a recession. Then, Standard and Poor's downgraded the US Credit Rating to AA+. There are various ways to review the implications of this move. Below are three. We take a quick look at two countries in the S&P AA+ club. This is just a quick look, since my take is that the core focus needs to be the possibility of a double dip recession.

1. Signaling Power:

Review and compare economic fundamentals across the OECD and come to your own conclusion on whether this credit rating event is a response to an economic reality that have already been factored in by the market, or this rating provides new information (broadcasts a new signal?) to the market that needs an economic reaction.

Here is a scenario analysis of the downgrade's impact on U.S. based financial institutions sectors:
http://swampland.time.com/2011/08/06/sp-downgrades-itself/

Here is another view of the impact of this downgrade:
http://www.reuters.com/article/2011/08/07/usa-ratings-financialsystem-idUSN1E7760AD20110807

2. Relative Macroecnomic Performance:

Review relative economic fundamentals across the globe, and reevaluate if there is a relative change in the US economy vis-a-vis the rest of the global economies, and if there is an across-the-board change in a set of economies across the global.

Here is Standard and Poor's view of the European economies and that the US credit rating downgrade means for them:
http://www.cnbc.com/id/44053959

At the bottom of this article below is an opinion of the coupling of the APAC region economy with the US economy:
http://www.reuters.com/article/2011/08/07/us-global-economy-weekahead-idUSTRE77628V20110807

3. Review Members of the Standard & Poor's AA+ Credit Rating Club:

To get started, here is S&P's sovereign ratings page:
http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/us/;jsessionid=6TZhT1HpLpw3Slb1QjJZM1NR4wLTThcH4MfNp4JHbLZcGVHG0yhL!603717864?subSectorCode=39&start=100&range=50

Let's review two members of this club:
1. Belgium:
Here are some quick statistics on Belgium:
https://www.cia.gov/library/publications/the-world-factbook/geos/be.html

Belgium set a record for the number of days without a government. If you think there's a message in there about fractious politics, here an extract about Belgium as a poster child from the Economist:

“Most surprising, perhaps, maddeningly ungovernable Belgium is being held up by many as a model for debt-crippled euro-zone governments.”http://www.economist.com/node/18988904?story_id=18988904&fsrc=rss

If you thought Texas was its own country, here are more details on the political stress and strains at work in the country:
http://www.economist.com/node/18988904?story_id=18988904&fsrc=rss

You could also review Belgium's interest rates in the context of the European Central Bank long-term interest rate statistics for member states.
http://www.ecb.int/stats/money/long/html/index.en.html

In contrast to the Economist article about Belgium a few weeks ago, the Wall Street Journal reports growing concerns about Belgium's borrowing costs:
http://online.wsj.com/article/SB10001424053111904007304576494042192351786.html

Les Belges thought setting a record for existing without a government was worth a party:
http://www.france24.com/en/20110217-belgium-world-record-longest-period-without-government-iraq-election

If you were Belgium, what would you do?

What do you think?

2. New Zealand:

Here is the NZ treasury's review of the NZ economy:
http://www.treasury.govt.nz/economy/overview

The factbook (https://www.cia.gov/library/publications/the-world-factbook/geos/nz.html) tells me that New Zealand has the following key industries:
Food processing,
Wood and paper products,
Textiles,
Machinery,
Transportation equipment,
Banking and insurance,
Tourism,
Mining

New Zealand's economy is coupled to the Australian economy, and you may review the industry sectors to understand weaknesses in the economy relative to the other members of the AA+ club. This would be my starter list:
- Banking and insurance,
- Textiles,
- Machinery.

While you are at it, here is New Zealand's reaction to the United States joining the AA+ club:
http://online.wsj.com/article/BT-CO-20110806-700118.html

If you were New Zealand, how would you react?

What do you think?

Economic Recoveries.

2011-07-20T22:00:00.000-07:00

Executive Summary: What would explain the length of the jobless recovery phase in an economic recovery? Would we find answers by comparing trends across recessions, or by comparing trends across countries, or by both? From the desk of I-Think-Therefore-Economics-Exists.

The employment/ population ratio has hit a low point not seen in a long while: http://research.stlouisfed.org/publications/net/page10.pdf

While you can utilize publicly available statistics to make your own charts and form your own views, here is a way to structure thoughts around it:

How do you compare recoveries and the nature of unemployment across recessions in the same country?
How do you compare recoveries and the nature of unemployment across countries during the same recession period?

Comparing Economic Recoveries Across Countries During the Same Recession Period.

Since there have been comparisons between the European economies and the American economy:

How do the trends in the employment/ population ratio compare across countries?
Are European economies more likely to have structural changes in unemployment rates than the US?

Comparing Economic Recoveries Across Recessions in the Same Country.

What does the increasing "length" of the jobless recovery phase in a recovery mean, as a trend across recessions?

Is there something in the nature of the economy, the nature of the macroeconomic entities in the economy, the depth of the recession, or the boom period prior the recession that has primacy in terms of its impact on the nature of the recovery?

Here is one pattern of Socratic thought that explores the two questions above.

Is the increasing length of jobless recovery phase in a recovery, as a trend across recessions, a function of:

The increasingly service oriented nature of the economy?
An increasing dependence on large monolithic corporate entities over time as drivers of economic performance, with the dependence changing from direct hiring to a greater multiplier effect across the economic ecosystem in terms of dampening hiring?
The nature of work available to labor, which has changed from hyper-local activity, to increasingly being touched by global supply chains?
An increasing delinking of corporate performance, financial institution performance and "real" economy performance?
The degree of specialization, and education, require for work, requiring a greater time for individuals to unlearn, turn around and relearn?

E.g. I talked about Baked by Melissa here, and surprise, surprise, it has expanded to four stores in NYC.

A greater population density in large metropolitan areas over time?

This may be counter intuitive, if you think in terms of supply, where people band together to create economic activity (not everybody can be an entrepreneur).
However, if you think in terms of depressed demand, which translates into opportunity for economic activity of a certain type, this may be a worthwhile line of inquiry.

Our lifestyles, which are less community driven, and hence make turnaround during recessions more difficult?

E.g. This may be an effect seen in decreasing labor activism (ed- analysis to be done) with each passing recession.

A psychological effect (animal spirits) of the nature of the boom period that preceded it?

E.g. How long did the Dutch economy take to recover from the tulip boom?

Simply the depth of the recession?

What do you think?

Note: Throw someone a thought provoking point about economics, and ye shall reap many more thoughts in return. These thoughts were first published in a macroeconomics forum, in the week of July 16th, 2011. Thank you, Prof. Rosensweig.

Google Plus and Apps.

2011-07-20T21:00:00.000-07:00

Executive summary: App downloads continue to explode across various mobile and non mobile platforms. Are apps secondary to the Google Plus strategy? No. Here is why.

The Overview

In response to my last post on Google Plus, a wise man (thank you JJ) asked me whether I think products, not apps, are core to Google Plus' success.

App downloads across various mobile and non mobile platforms (have you downloaded Spotify yet?) are exploding, and both paid and free app download projections till 2015 indicate they will become an integral part of our lives, if they aren't already.

So, the obvious answer? No.

Google Plus' Avenues to the Apps Superhighway
How does google plus play with apps? Here are some ways:

1. Android Mobile Platform Apps:

Google already has a mobile app platform with ready apps. Make it really easy for the apps to integrate with google plus.

2. Google Products as Apps:

Google products as apps are already a reality. Plug Google Plus into them.

3. Leverage/ Create an App Partner Ecosystem:

Android already has one for mobile apps. Google plus becomes one becomes the ecosystem for social across mobile. As I mentioned previously, the google ecosystem needs to spawn a few Zyngas, a few angry birds (while watching out for privacy trade-offs).

Easier said than done, right? The really interesting question? Can Google Plus also be the social collaboration framework for folks at work, and not just for folks at play?

What do you think?

Google Plus, and the Facebook and Apple Context

2011-07-15T06:00:00.000-07:00

Executive Summary: Google Plus' future is for Google to throw away. It is in the hands of the marketing team (because I think the product is on a Moore's Law-ish trajectory), and in the hands of the unknown disruptive forces hiding in dark alleys. Yes, this is an unabashed, quick and dirty speculation on Google Plus' opportunity. From The Desk of Talking-About-Google+-As-a-Social Network-Is-Like-Calling-Le-Louvre-a-Little-Hovel.

After living with google+ for a while, here are some key, qualitative thoughts.

Throw away all that propaganda about Google Plus as a social network. Calling Google Plus a social network is like trying to fit an elephant into a refrigerator. Evaluate Google Plus against Facebook and Apple on the following dimensions:

• Core Company Products

• Digital Platform Integrating Core Products as an Ecosystem

• Flexible Social Platform

• A Gateway to a Digital Life

Now that we have got the obvious Big, Hairy, Audacious Ideas out of the way, here are the qualitative teasers I was talking about:

1. For The Believers:
Are you already a googlephile who cannot live without, atleast a few, google services? Then, Google Plus is, for now, google accounts on steroids, with controls and features staked onto it.

Very nicely done, though. Thank you. Not tacky at all. Now, segway to that Journey song from Glee.

2. Indicative Product Feature- Circles:
Very nicely done. Again. Lives up to its billing as the slayer of social network privacy concerns.

The circles model of relationships reminded me of a "brain's trust" model shared by a macroeconomics professor in graduate school. The graphical privacy controls makes you want to get comfortable by tweaking privacy to your comfort level.

Note, I have not talked about features like Hangout. All of those also falls under the "Nicely done. Thank you" category. Why pick Circles? It jumps at you like no other Google Plus feature.
3. Integrated Digital Platform:
Picasa for pics. Videos.YouTube. Yeh. Google has some pretty powerful and mature products. Google Plus comes "preloaded" with some of these google products. Google Plus is a great way to sew these products together, making it a complete and a serious digital platform.

Would you say that Google Plus is like an Apple ecosystem? Can it be like an Apple ecosystem? Can it be better than an Apple and a Facebook ecosystem rolled into one?

I think it can, but that is a different story, a different blog post. All Google has to do is light a few fires. Keep doing what it is doing on products. Keep integrating them. Oh, and spawn a few Zyngas now and then.

4. A Social Platform:
Will Google Plus be a serious social platform? That would be a function of adoption (think share of social life) and switching (think identifying this as a primary social platform).

Google Plus may hit 20 million + users by July 20. However, how many users will migrate from Facebook to Google Plus? How many will live in animated suspension between the two worlds? Finally, how many will use Google Plus as a glorified GMail service?

What would be your estimate of an equilibrium/ steady state Google Plus user base? 150+ MM? 250+ MM? 400+ MM? While staying out of China (for how long?)? What is your sense of the tipping point when Facebook users start migrating from Facebook to Google Plus, network by network?

5. Privacy Controls:
Yes, finding myself in a few folks' circles, when I hopped onto the platform, freaked me out a little.

Also, Google Plus, better than google accounts, brought home the fact that I use a lot of google products and all that information is a sneeze away from being mapped into a digital life.

If you live off GMail, this should not surprise you. However, since I can claim to understand a little bit about security, privacy concerns will always pop up in my mind. Maybe it is just me.

6. A Gateway to a Digital Life:
To borrow from a wise man I know (who is also on Google Plus) - can Google be my gateway to a digital life?

The Pitch? Without much ado (to all the Google engineers, yes I am being simplistic :-)), Google can be my online identity, my Netflix, and my computing device on a cloud. Even as a glue for the google products we already (or will) use, Google Plus will be a formidable doorway.

I am inclined to draw a bubble chart mapping how the Apple, Facebook and Google future state ecosystems would look 5 years from now. For now, all I will say that in his early days, Henry Ford would have been proud to call his company Google. Think Google Products + Android + Cloud + Google Wireless (Definitely Maybe?).

That's enough crystal ball gazing for now. I have stretched my definition of "key qualitative thoughts" far enough. Moreover, I would like to sneak in the crystal ball gazing in digestible chunks.

What do you think? If you do, you know where to catch me for a lively conversation.

News, New York Times, and a Movie about Publishing

2011-07-09T08:49:00.000-07:00

Executive Summary: A review of "Page One: Inside the New York Times"- a documentary that provides an inside view of a market leader in publishing through some changes in the industry. From the desk of If-It-Sounds-Like-the-NYT-But-Reads-Like-Twitter, It-Really-Isn't-A-Documentary, It-Is-A-Reality-TV-Show.

Introduction

The last time I posted about a movie was the opening weekend of Iron Man, over 3 years ago. This one is about "Page One: Inside the New York Times", a "fly on the wall" account of a desk at the New York Times.

The Key Theme: Challenges

The movie gets three challenges facing the New York Times right:

1. A Market Leader's Core Differentiation in a Seemingly Fragmented Ecosystem:
Where does the paper, and in comparison, the rest world, stand on news accountability, quality, objectivity, and transparency? The movie touches upon the difference between Journalism and activism, in the Wikileaks context.

2. The Survival of Publishing as a Well Oiled "Machine", and Its Metamorphosis :
The documentary covers Der Spiegel, Guardian and NYT partnering with WikiLeaks, and alludes to the shifting sands of the publishing ecosystem where a publisher could be a source.

3. Funding to Sustain a News Enterprise:
It touches upon the launch of the metered paywall at NYT (in line with the FT, and the Economist).

Finally... The Opinion

As for the documentary experience, it stays true to the fly on the wall theme. Its like what reading Twitter is to reading the NYT. However, it does a great job of juxtaposing current changes in the industry impact the market leader, against its storied past.

If you are looking for more detail on the trends, you would be better served by visiting the Economist website (or reading this week's print edition) here:
http://www.economist.com/node/18904136. More on that to follow.

At worst, you may end up feeling like you watched some reality TV about a desk at the NYT, and even then, you will find a memorable line or two. "A textured life", for one.

What do you think? If you saw the movie, what did you think?

Netflix and Organizational Capabilities

2011-03-24T04:40:00.000-07:00

Executive Summary: While I previously shared a thought exercise (link) on the kind of capabilities Netflix can demonstrate against its competition, this post is about the hard work that goes into creating an organization where teams work in concert, and in diverse ways, to develop these competitive capabilities. From the Desk-of-George-Lucas-Theory-When-In-Doubt-Make-Star-Wars-Prequels.

Why am I talking about Netflix?

Three reasons.

1. Innovation:
Netflix has been called an innovator that leverages its investments into innovation effectively towards business capabilities.

2. Market Capabilities:
Recently, there was news about Netflix looking at original programming, that kicked off this thought exercise on innovation and tactics below:
http://randomjunkyramblings.blogspot.com/2011/03/innovation-and-tactics-series-netflix.html

3. Distinct Context:
Unlike the iPhone, Netflix has entered existing markets and upended them without much "confetti about cool". It's almost like a B2B company in a B2C market.

What does Netflix mean for Other Organizations?

Netflix continued to invest in streaming capability for many years, before launching the product. This demonstrates a long term thinking about its business and its markets.

How does an organization connect
a. investing in long term capabilities, and,
b. thinking about markets,
In hindsight, all of this is as easy as pie. Lets look at the challenges.

Challenges with Making the Organizational Connections:

Let's take two cases within two functions in an organization.

1. Finance:
Say you are a business finance manager, and a business manager comes over to you about a prototype he would like to acquire and integrate into the company's product and marketing portfolio. How do you not only help him acquire the prototype, but also give him the leeway to invest time and resources toward patiently integrating an early stage startup product into a reliable portfolio asset at the company?

2. Marketing:
As a marketing manager, say, you realize you need an organization wide communication and analytics sharing capability to meet the product and competitive environment in the medium term. What kind of marketing programs, and in what prioritized order, do you push, to deliver phased, sustained capabilities to your organization over the medium term?

Suddenly, this doesn't look all that easy, does it?

For managers battling to get things done within their silos on a daily basis, these are not easy questions to answer. Thinking about this gives you the scale of the effort that an organization needs to put into developing capabilities that impact its markets.

What do you think?

Innovation and Tactics Series: Netflix Bids for Original Programming.

2011-03-18T04:51:00.001-07:00

Executive Summary: Netflix has been lauded for its ability to manage innovation, especially for its ability to translate innovation into real impact on its business. This post helps us think through some of the market possibilities it can target. From the Desk of "Is it a bird? Is it a plane? Its a... Jedi mind trick!"

The News, The Question

Netflix seems to be making interesting moves in content production:
1. http://www.theatlantic.com/business/archive/2011/03/netflix-plays-the-long-game/72611/
2. http://blogs.forbes.com/chunkamui/2011/03/17/how-netflix-innovates-and-wins/

The news reminded me of a curveball I recently threw to some very bright folks:
Will Netflix get into running movie theaters (or atleast renting them out temporarily)?

What Does The Question Mean?

The folks found the question interesting enough to pause to think it through. This is not because they did not have a (what may seem like an obvious) ready answer, but because it should, and apparently did, make you think about Netflix's context and how it is disrupting the context around it.
To rephrase:
1. Can Neflix groupon its at-home viewers into a high quality, custom generated "in theater" experience?
2. Can Netflix be vertically integrated in a niche market, while still serving what is currently its core market?

All in all, how do these ideas impact its profitability and its margins? At worst, can a capability to pursue the option posed in the question be a useful negotiation tool?

To dig a little bit deeper:
- What about Netflix's current position and capabilities (e.g. continued investment in innovation) provides it a competitive advantage?
- As Netflix get to know more of its customers better, how can it leverage it's information better?

Structure Around the Question

Here are a couple of paths to making sense of this question on Netflix:
- Content Development and Production -> Content Channels and Distribution -> Content Consumption
Or the reverse:
- Content Consumers and Markets -> Content Channels and Distribution -> Content Development and Production

Deep Dive Into The Market and The Consumer

Lets walk through the first way of looking through this process:
A. Who is Neflix's core consumer? What market is Netflix targeting?

1. Viewers of TV and movie dvd like content "experience" at home with access to a mailbox and to an internet ready device?
2. Viewers of video content "experience" at home with access to an internet ready device?
3. Viewers of an entertainment "experience" anywhere with access to an internet ready device?
4. Viewers of an entertainment "experience" with access to an internet ready device or with access to a specific location?

Now, you can define a spectrum of "experience" as well, from a streaming video "experience" on a small device while on the move, to a fixed location video "experience" of the IMAX or the "IFC Theater"/ "Indie Movies" sort. As for margins, isn't the IMAX share price hear its LTM high?

Now that you have some lightbulbs flashing in your mind, need I say more?

What do you think?

Ad Spend Trends in the US

2011-03-05T09:04:00.000-08:00

Executive Summary: A quick check with *you* on your thoughts on media and ad spending in the US. The objective is two fold- identify what you believe are the factors driving the trends, and then seek your forecast for this trend.

Trend: Advertising Dollars

I attended a conference where a respected businessperson emphasized a trend in the media industry. Ad spend in online channels was not growing the overall pie in terms of dollars. Instead the online channels were cannibalizing other channels. So the question arises- is there a disssonance between the change in the size of the pie, its slices, and consumer/ end user relevance?

Older, publicly available statistics are available here:
1. Fred Wilson:
http://www.avc.com/a_vc/2010/06/ad-spend-trends.html
2. Hal Varian:
http://www.theatlantic.com/business/archive/2010/05/a-google-eye-view-of-the-newspaper-business/56360/1/

Some Macroeconomic Factors

1. Are economic conditions factors in terms of the overall ad spend pie? How?
2. Are demographic trends factors in the stagnation of the overall ad spend pie? If so, how do these trends play out in terms of the slices of the pie?

Marketing Teams as Factors in Ad Spend Shifts

I also noted some opinions a few years ago that the move of marketing dollars from traditional media to online media would be slow because of deep, embedded marketing and agency relationships, as well as marketer mind share.

Consumer/ End User Behavior

1. Has the user's behavior across the various marketing communication touch points, even with the addition of online media touch points, changed?
2. Has the user's reaction to these marketing communication touch points changed over time?

What do you think?

White iPhone 4, Hamann Mercedes and Nike AF1 shoes.

2011-03-05T08:56:00.000-08:00

Executive Summary: The White iPhone 4 has been a no show. Is this an opportunity that Apple can exploit? A la the Hamann Mercedes or the Limited Edition Nike DJ Clark Kent AF1 shoes? Does that fit into Apple's portfolio of marketing tactics? For some structure to these tactics, see:
http://randomjunkyramblings.blogspot.com/2011/03/innovation-and-tactics-series-ipad2-and.html

From the Desk of Aerosmith-said-Lateral-Thinking-is-Hard-On-the-Knees.

Carrying and using the "no show" Apple White iPhone 4 has apparently become a status symbol in silicon valley:
1. Why Apple can make a white iPad but not a white iPhone:
http://edition.cnn.com/2011/TECH/gaming.gadgets/03/03/apple.white.ipad/

Now, there are enough "shops" around the world happy to rip apart an Apple product, and some can even put them back together. In fact, you could even classify them as a subculture. However, can Apple use these custom built white iPhone 4s a as marketing tactic?

1. Geneva 2011: Hamann Hawk
http://www.autoevolution.com/news/geneva-2011-hamann-hawk-live-photos-32206.html

2. Nike's Limited Edition DJ Clark Kent AF1 Shoes:
http://www.nike.com/nikeos/p/sportswear/en_US/media_details?video=3&videotype=video&guid=31aa9ccc-445b-ce59-7435-55c77c81215d_id1253&

How many companies you know would draw laughs, instead of being excoriated, for not launching a promised product or extension? :-)

What do you think?

Innovation and Tactics Series: iPad2 and iPhone Nano?

2011-03-03T05:07:00.000-08:00

Executive Summary: Sometimes, the simplest things can be lost in the daily tactical maze. There have been a slew of statistics demonstrating that Android phones have been eating Apple's lunch over growth in marketshare. If you were Apple, how would you react to these market developments? With its product pipeline and brand dexterity, does Apple really care? From the Desk of Beatles-Were-Wise-With-Live-And-Let-Die.

... More: Think a simple 2x2 matrix covering- market penetration via existing and new products, adjacent market development via new and existing products, and entirely new markets via new products.

The Statistic

Google’s Android becomes the world’s leading smart phone platform:
http://www.canalys.com/pr/2011/r2011013.html

So, there have been rumors swirling about the iPhone nano:
1. Rumors of an iPhone Nano Continue: Smaller, Cheaper, No Memory?
http://onespot.wsj.com/technology/2011/02/14/351ce/rumors-of-an-iphone-nano-continue-smalle

2. Opportunities & Challenges Galore for Apple with 'iPhone Nano':
http://blogs.strategyanalytics.com/WDS/post/2011/02/16/Opportunities-Challenges-Galore-for-Apple-with-iPhone-Nano.aspx

Could they be true? What should AAPL be doing?

The Structure Around The Idea

Here are some steps to aid the thinking process:
1. Current Product for an Existing Marketing- iPhones:
Apple smartly squeezed all it could through its relationship with ATT. Now, to seek increased market penetration, it partnered with Verizon. iPhones are still positioned as products that are a "cut above the rest", and continue to generate great margins for Apple.

The feature pipeline for the current iPhone product line is strong and Apple can expect to continue to dominate the market.

2. New Product for a New Market- iPads:
Apple at the netbook's lunch. No other product is near the customer's utility curve (read conjoint analysis). With the iPad2, Apple widens the gap with competitor products, and safeguards its margins. However, would we say that the Android's smartphone market is a "new" market for Apple? Perhaps it needs a "new" product for this "new" market?

3. New Products for Existing Markets:
Really? See point 1. Even better, Apple's strong brand and positioning with its existing product line is so much "gold" that it can practically launch what were traditionally new products under the guise of extensions of existing products.

4. Existing Products for New Markets:
Make no mistake, the iPhone nano is a *new* product in the product development sense. However, in terms of messaging, the iPhone nano is brilliant in leveraging the consumer connection and premium positioning with the "nano" and pit it against "fancy-scmancy" andriod phones.

The Bottom Line

Now, the questions that remain:
1. Internal Assessment: Do Apple's current financial position vis a vis its margins, and its future product margins trends, demand the iPhone nano launch?
2. Competitive Assessment: What does the iPhone Nano launch do its competitors? You can't expect them to shrivel up and disappear. :-)

Stay tooned.
What do you think?

Smartphones, Hypercompetition and Integrated Marketing Communication

2011-03-01T05:00:00.000-08:00

Executive Summary: You are a second ranked player in a hypercompetitive market. You learn, from an independent research house, that your customers are more likely to buy your products than your competitors customers are likely to repurchase theirs. What do you do? Do you utilize this in your marketing communication? From the Desk of A-Kick-in-the-Shins-Does-Not-Always-Save-Nine. :-)

The Statistics

While looking at statistics toward structuring a perspective on industry trends, I came across an interesting study on customer loyalty for smartphones, where, even though the iPhone outperformed Android phones in NPS (Net Promoter Score- a Bain methodology) metrics, (marginally) more Android users are likely to buy a similar device, compared to the number of iPhone users' likely to repurchase an iPhone.

Waiddaminute? Did you read that right?

The Communication Opportunity

Given the hypercompetitive smartphone market, you would think the Android marketer has hit the jackpot. You can imagine Google Android folks rushing to their agency with a new brief to launch the next multichannel campaign (broadcast, web, etc.) in no time.

You can even imagine a few briefs ("Android users keep coming back for more") and a few advertisements:
1. Android user sees a store sign, "New Android Phone" and buys one, while iPhone users are shown getting their grip right for the iPhone, or,
2. Android user gets another Android phone as a birthday or a Valentine's Day gift, "I always wanted another Android", or,
3. Voice over wraps up with "Even when independent researchers praise the iPhone, they can't help but admit that more Android users are likely to buy another Android phone, than there are iPhone users willing to buy another iPhone."

... and many more!

Some Structure and Strategic Thought

The standard approach may be pretty simple in the abstract: Corporate Strategy -> Market Strategy -> Communications Strategy -> Portfolio of Communications Tactics. However, things aren't as straightforward in the "real world", are they?

If you were an Android marketer who finds this statistic, you would consider a few things, not necessarily in a top down, structured manner:

1. Source and quality of information:
Is the source and quality of information firmly in your corner? Well, you'll take a firmly independent corner too, wouldn't you? It’s more than just checking if your competitor can throw a more effective/ damaging response with the same source of information.

2. Timeframe: Does this lead to a "multi-period game" over advertising where you do not win, or you have no first mover advantage, or both parties end up in an expensive stalemate with a negative outcome for you? Coke vs. Pepsi advertising is an example. Also, think about Pepsi stepping back from Superbowl advertising in 2010.

3. Communication Themes: What is Android's driving theme for the season or for the year? What is Android's multi-year communication and branding strategy? Does this drop in the ocean create ripples that turn in tsunamis, or should this drop be assimilated quietly using different tactics?

4. Portfolio of Tactics: Does the Android team have a portfolio of tactics aligned with its communication and branding strategy? Does the portfolio explicitly accept or reject this opportunity?

Digging into the Details
Let’s dig into a couple of the items listed above.

Timeframe:

Lets take one question- Do you think there are season spanning advantages to pushing the message? Here are some hypothetical situations that elaborate upon this. Say, it's the holiday season, and Android launches the campaign based on this research. Does Android have time to make an impact on sales? Does Apple have time to respond right away and nullify the advantage? Can Apple hit back harder around the same theme at the next key sales period?

The Source and Quality of Information:

The study, using the Net Promoter Score methodology, declares that the iPhone outperforms others in user loyalty:

http://www.zokem.com/2011/01/in-the-us-market-iphone-outperforms-other-mobile-platforms-in-user-loyalty-by-a-wide-margin-android-is-second-blackberry-fourth/

Given the number of iPhone users that have stuck through a lot of thin (network, antenna, cracked case, etc.) this should not be surprising. However, as you scroll past the Net Promoter Score based results of Mobile Platform Loyalty Ranking graph, and down to Repurchase Behavior graph, you would note an interesting result.

89% of Google Android customers would buy a similar device in the future. Compare this to 85% of iPhone customers being willing to by an iPhone in the future.

Huh?

Now, there are various perspectives to this:

The iPhone has set very high expectations and is doing a fantastic job keeping its user engaged.
Android targets a different customer segment than the iPhone and phone’s pricing could be a factor. (Perhaps not for long-http://www.pcworld.com/article/219712/cheaper_iphones_why_apple_might_risk_its_brand_identity.html)
Also, iPhone’s AT&T exclusivity (for this study period) could be a factor in Android's stats.

We can come up with a few more as we think through this. However, what do you think?

Innovation and Tactics Series: Groupon Wants My Married Friend to Speed Date.

2011-03-01T04:59:00.000-08:00

Executive Summary: A light hearted look at the marketing tactics arising out of Groupon. No, I don't mean Groupon...zi. From the Mark Twain Desk of Funny Bones at the Jeffersonian.

Groupon wants my married friend to speed date! Really! Well, technically speaking, my married friend received a groupon for speed dating. I am sure you can see the humor in that. :-)

The smart folks would jump to thinking of this as a marketing, even statistical, error. However, this could well be the Jedi mind trick of the year so far- after the cool VW darth vader superbowl ad.

How? Here are some ideas...
1. Don't your married friends keep setting you up with dates? Duh, right? You would think their persistence factor would beat any email spam marketing tool known to man, or woman.

2. Do you know what the divorce rate in the country is? This could well be a long term, relationship building strategy for a future target audience. Disclaimer: A bright, married friend suggested this when I put this up on Facebook, so don't shoot the messenger.

3. Its an error- my friend would be one of the few, or many, random, in error recipients of the sophisticated, targeted statistical model used for the promotion.

I am pretty sure you have some ideas of your own. What do you think?

Innovation and Tactics Series: Putting Cool to Use- the iPhone at work.

2011-03-01T04:58:00.000-08:00

This is an old link and an old post, and I have it here because its an apt start to a theme I would like to pursue.

The iPhone is cool. The iPad is cool. All that cool- what does it do for you? :-)

Here's an example of putting cool to use:
http://www.youtube.com/watch?v=NAllFWSl998

Resonates more than Angry Birds? I bet Angry Birds wins too when more of stuff like this happens. How has technology made your life better?

Next stop: iPhones and iPads for the working life?

What do you think?

Apple iPad : A Profile of a Technology Influencer / Opinion Leader / Early Adopter.

2010-04-03T06:17:00.001-07:00

There are studies about shopping behaviour and there are studies. Then, there are Confessions of a Technology Shopaholic.

As a self-confessed gadget freak, I can see that the link below- a Technology Influencer / Opinion Leader / Early Adopter spilling the beans on a purchase- falls in the latter category:
http://shopping.yahoo.com/articles/yshoppingarticles/358/how-my-499-ipad-purchase-became-a-1170-credit-card-bill/

If you can't wait to hit the Apple store to see a decade long buzz on convergence and ubiquitous computing take a step closer to reality thanks to great productization and marketing, join the line. :-)

What do you think?

--

Cloud Computing and Innovation in Sourcing Strategies?

2010-03-23T18:26:00.000-07:00

Executive Summay: A speculative look at innovation in sourcing strategies driven by Cloud Computing, based on pricing complexity and on third party players and standards helping develop seamless integration across vendors.

Would the adoption of cloud computing across industries lead to innovation in sourcing strategies? Would it lead to innovation in how the sourcing strategies are implemented?

Tried and tested single, dual or multiple vendor approaches exist, along with bidding mechanisms. If we are to speculate on potential for innovation, below are some possibilities. These are driven by the increasing complexity seen in the pricing of sourcing contracts- the elements of which sometimes resemble derivatives transactions.

1. Does the future hold structured arrangments where cloud computing locations (think: risk management/ disaster recovery/ pricing & capacity management) are transparently bundled into dynamic pricing of services? E.g. Dynamic energy trades/ demand management in the enery sector?

2. Does the future hold structured arrangements where multiple vendors could transparently bundle their services in a dynamic pricing model? E.g. Advertisers bidding on Google search response positions.

As you can see, this speculation rests not only on pricing going "derivative", but also on the emergence of a "glue" that holds all this complexity together and packages it for translation into everyday use.

Getting an answer to this can be broken down into the following steps:
1. Current state of the art in, and future trends in the industry:
- Are the players specializing? How?
- Which tiers of the computing infrastructure are being moved to the cloud and how?
- How are different sectors engaging with cloud computing and its vendors? E.g. Data privacy concerns in healthcare and financial services. We have covered some thoughts that impact this here:
http://randomjunkyramblings.blogspot.com/2009/08/privacy-and-social-media.html

The current state analysis process may be similar to the one we previewed for the consumer electronics industry here:
http://randomjunkyramblings.blogspot.com/2010/01/consumer-electronics-show-ces-2010-ce.html

2. Alliances:
- Is there a potential for alliances between players in the sector? Or would any partnership within the sector be a step toward mergers and acquistions?
- Is there a potential for vertical alliances? E.g. Cloud computing providers and Google Analytics?

3. Development of Third Party Standards for Cloud Computing:
- These would range from metrics to methodologies across quality of services, monitoring and executive reporting.

What do you think?

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Stock Repurchase Trends and Forecasts

2010-03-23T18:25:00.000-07:00

Executive Summary: Companies as diverse as Pepsi and Intuit have stock buy back programs. Below is an effort to structure an analysis of this corporate finance mechanism, and provide a filter for someone frequently coming across news on this mechanism.

Are there explicit stock repurchase trends in the equities markets?

Can these trends be categorized by sector, geography, excutive compensation structure, company capital structure, dividend policy, need to maintain EPS and EPS guidance, competitive nature of the industry, ranking in the industry, maturity of the player or the industry, or specific macro-economic forces (say a recession) at play?

Or, are these trends and forecasts driven by the specific circumstances of a particular company, and that there is a "natural" limit to a successful, organic reinvestment of cash flows back into the company's operations? If there exists such a "natural" limit, would the company's hurdle rate be the single most important factor in decision making?

What do you think?

Parallels to Regulating the Financial Sector

2010-03-23T18:24:00.000-07:00

Executive Summary: The financial services industry and regulators are in rare agreement over the need for some sort of reform. The broad spectrum of views on the issue suggests a need for some fundamental questions that highlight the key decision making elements of the process. Here are some questions that may position you to quick get to the crux of the matter.

A friend* who owns and runs a company in the chemicals industry asked, "If the state is responsible for everything, and pays for everything, why have any liability (on the private players) at all?" As a responsible businessman, he was reacting to a news article that in case of problems, a power plant operator's liability would be capped at 5 to 10% of the total cost of building the plant. The sector? Nuclear power.

The financial services sector and its regulators are apparently in rare agreement that some change must be effected in the sector. The questions I raised in the exchange over the nuclear power sector may be applied to the financial services sector. This is to serve as a parallel to help think through the direction of regulatory reform.

The key to the questions is based on:
1. Market structure
2. Managing liability

Fundamental Questions
Here are some fundamental questions that may help us get a better grip on the discussion.

1. Liability:
- Why do we need the concept of a corporation and the limited liability corporation, for private industry to successfully exist?
- Why do we need the concept of bankruptcy and the potential of a corporation emerging from it?
- Why do countries support the concept of LLCs, and why do more "efficient" (???) economies have "good" bankruptcy laws and implementations?
- Does liability, actual or nominal, ever disappear? Or does it just sit hidden (liability arising out of the risk of a catastrophic event), or rest in plain view (estimated liability after the catastrophic event has occured), till some action is taken?

2. Comparables:
- Does a generator of hydro electric power, who has built a dam, get some sort of liability support?
- If yes, is there a particular reason for either denying or augmenting liability support for the nuclear power sector?

3. The Need for Private Players in the Industry:
- Why do we need private players in the sector? Why can't the government go it alone? Is there a need for more capital, technology, management expertise, or innovation?

4. Regulation:
- How does regulation create the right sort of safeguards and incentives?
- Can the regulation be effectively implemented/ enforced?

More on Liability
An example from the brick and mortar world:

If a building falls a few years after construction (now, we could use the example of crane accidents which have happened in New York), the supplier of building materials/ builder/ building management/ city may get sued/ face civil or criminal action/ etc. Perhaps the high cost of paying out the liability may cause one of the players to go bankrupt. Lets deconstruct this scenario:

1. Was the supplier of building materials working in an environment where faulty components were expected to be weeded out by other players in the value chain, and were not supposed to make the building collapse? In that case, was the liability shared by the "integrated" supplier, construction company and the checks and balances system?
2. Was the liability so huge that, despite it being correctly apportioned to all stakeholders, it remained so large that even after liquidating, the private players involved couldn't make a dent in the liability? In that case, what's the point of apportioning liability?
3. Is it possible to limit the effects of a collapse of a market to within the market? E.g. Does the market have enough players to replace the bankrupt company?
4. Would the collapse of the company cause the market to collapse? Would the collapse of the market be acceptable?
5. Is this a market where "failure" means only two options- all players come together to fix the problem, or someone is prosecuted for negligence, while the rest try to fix the problem?

An Example of a "Negotiated" Allocation of Liability
Lets return to the financial services industry, and look at how Iceland is handling the liabilities arising out of the collapse of its financial services industry:
http://online.wsj.com/article/SB10001424052748703391004575106452707894556.html

What do you think?

Update: Nikhil shared a wonderful article that showed that folks in the 1950s in the US had thought about these deep philosophical questions while creating an industry in the Nuclear Power sector. It's just fantastic to know that. Now, the same assumptions may not apply in a different context, but it is still fantastic to get an insight into "market engineering".

* Thanks Nikhil.

Organization (Re)Alignment and 360 Degree Messaging.

2010-02-09T22:09:00.000-08:00

Executive Summary: Tools to tackle the "softer" aspects of organizational (re)alignment- backed by analytics, like the Identity Circle, in a previous post- need to be prioritized when organizational initiatives are planned. Purely as a current example, snippets from the global discussion on Toyota's response to its car performance crisis provide you the starting point to think about, and build, the tools to weigh your options more effectively.

The Crisis
Toyota is facing a massive car performance crisis. It has needed various parts of its ecosystem, which includes car dealers, sales, marketing, PR, operations, finance and suppliers, to move in a concerted manner across various channels to tackle it. The crisis has the potential to impact the industry as a whole. Yes, that's where the term 360 degree messaging comes in. It implies both external and external messaging.

The Conversation
Below is a snippet from the global discussion about Toyota's crisis that shed light on the response to the crisis:
1. Accelerating towards crisis: a PR view of Toyota's recall
http://www.guardian.co.uk/business/2010/feb/09/pr-view-toyota-reputation-management

As you would have noted, this article talks about crises that companies like Mattel and Cadburys have tackled previously. Toyota's crisis happens to be a current example in a continuum. The conclusion? A brand/ PR crisis is not an "unthinkable". It may be a Black Swan, but it needs to be explicitly considered.

Organizational (Re)Alignment?
How does the organization and/ or its ecosystem tie into a crisis response? Lets look at some questions that help us evaluate this.

* Are crisis response issues worth minimizing in advance? Do they deserve upfront planning and resources?
* Are crises response issues black swans?
* Is response to a crisis purely an external messaging issue? Is it a leadership issue? Is it an across-the-board organization/ ecosystem issue?
* Would tools that effectively (re)align organizations have helped Toyota or other organizations in crisis?
* Would the results of implementing such tools have helped response?
* Which tools are more effective at providing leadership, or the overall organization, levers to deploy an effective response?
* What tools are available?
* What are the pros and cons of each?
* How effective are each of these tools?

What do you think?

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The Identity Circle: A Talk by Larry Ackerman

2010-02-04T21:29:00.000-08:00

Executive Summary: Larry Ackerman gave an amazing talk on the Identity Circle recently in NYC. His insights and measured responses to queries led to an enlightening evening for the audience, and a fleshing out of the concept and implementation of The Identity Circle. A perspective would be to look at molding/ creating an organization's identity as a tool in a spectrum of initiatives toward organizational (re)alignment.

The Talk
Larry's talk was an interesting insight into the challenges of identifying and molding an organization's identity. The website below provides a great overview:
http://www.theidentitycircle.com/

It was refreshing to see the presenter acknowledge sources that have provided a foundation for his work- Maslow's Hierarchy of Needs was one of four.

Apple was a case in point of an organization that has transitioned through various markets and technologies while maintaining a core identity. Maytag is another example where his work yielded results.

Larry's experience with a multiyear engagement at a large, complex, multi-market organization shed light on the effort that goes into moving toward an identity for an organization. The challenges are greater for acquisitive organizations.

Plan for Organizational (Re?)Alignment
Larry explicitly tied in the Identity Circle with organizational alignment initiatives. However, how would you rank order this (re?)alignment initiative when an organization picks its top 3 initiatives for a period?

A Perspective on Organization Realignment
The concept can be looked upon as a part of a spectrum of initiatives organizations may use to realign themselves, where Identity Circle occupies the "softer" range of the spectrum, which is usually occupied by the communication/ messaging tools. Specific cost cutting and process and revenue improvement initiatives occupy the "harder" range of the spectrum. This tool provides leadership the levers for a faster turnaround toward results from hard initiatives.

Note: Larry pointed out in his talk that Identity Circle is backed by hard, analytical tools- its categorized under "soft" tools here as it's "direct" results focus on perception and attitudes. Looking at the steps in the process, you might agree that they are nothing but "hard". :-)

Now, the key challenge remains- given the need for all organizations, public and private, to turn around quick financial results, what would trigger an organization to target a complex and potentially long term initiative in its top 3 items on the "to do" list?

Some More Questions
Larry's thoughts on some of the questions I discussed with him.

1. Identity Beyond The Organization:
* Given that quite often, a nation may be attributed with an identity. Does the Identity Circle applies only to organizations?
- Yes. However, an organization with an identity may span diverse and complex entities.
* Does an industry like the diamond industry -from DeBeers with "Diamonds are Forever" in the 1930s to players like Zales today with DeBeers still a large player- shares an identity?
- No, the players share an image- the identity circle is still tied to the organization.

2. Identity and the Market:
* Do hypercompetitive markets, like Christiansen's Disk storage industry case, "own" the identity (or a large percentage of the identity) of an organization?
- No. The market plays a role in the identity of the organization, but the organization firmly owns its identity, even in extremely hypercompetitive markets that see frequent churn in participating players. Apple was a case in point.

3. Google and China:
* How does Google reconcile the hacker attack problems with China, its core theme of "Don't be Evil", and its initial intent of being an active player in China, despite known challenges going in?
- Google's tactical decision-making may vary to reconcile various objectives; however, longer term, its moves will be in line with its identity.

What do you think?

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Entrepreneur's Corner: Baked by Melissa, Bite-Size Treats!

2010-01-24T16:40:00.000-08:00

Executive Summary: We look at an entrepreneurial venture, Baked by Melissa, and some things that stand out with this cupcake shop- product size, pricing and a range of product flavors.

The Overview
Walking about in Manhattan, two signs of green shoots caught my attention. Here is "Baked by Melissa".

The "Baked by Melissa" store's hole in the wall look belies all the work that seems to have gone on behind it- they already seem to have a following, and also run a catering operation. I discovered in when I saw a long line in SOHO, almost as long as the ones formed by fans outside the Abercrombie store on 5th Ave., leading up to a little window.

The cupcakes are bitesized, for a dollar each, and you pick a minimum of 3 from the shop. I was only too glad to sample 3 different flavors at one go. I can see cupcake fans going in for volume when they visit the store.

How Do You Find It?
http://www.bakedbymelissa.com/

Green Shoots?
Melissa Bushell started this venture after moving on from her last job. Talk about green shoots! Here's a candid (third party) interview:
http://cupcakestakethecake.blogspot.com/2009/04/cupcake-interview-melissa-bushell-of.html

It's a great insight into "Animal Spirits".

The Deal- The Marketing Strategy
Why would I talk about this startup?
Note: These perspectives are all mine and have not been discussed with Baked by Melissa.
* The Product: Interesting mix of standard and innovative cupcakes. Did I say that I see cupcake fans buying cupcakes in "box sizes"? I can also see a bite-size cupcake going up against mini/ regular/ large cupcakes with a message- "lose the calories, but not the taste".
* Product Size and Pricing: Did I mention that the cupcakes are bite-sized, for a dollar each, and you pick a minimum of 3 from the shop? This strategy confers great flexibility on the margins.
* Positioning- While the messaging theme (see website) is simple and correctly centered around taste, it could also subtly play into a health and fitness savvy dessert-fiend profile.
* Merchandising- none noted at the store. A simple, "back to the basics of taste" operation.

Ahem... Constructive Criticism?
None. The idea here is to understand "green shoots" and "animal spirits". The entrepreneurs ostensibly have the right counsel to survive growth pangs.

What do you think? Ready, Steady, Cupcake?

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Entrepreneur's Corner: Organicoa, for Hot Cocoa!

2010-01-24T16:16:00.000-08:00

Executive Summary: We look at an entrepreneurial venture, Organicoa, and some things that stand out with this cocoa shop- product taste and size, and positioning.

The Overview
Walking about in Manhattan, two signs of green shoots caught my attention. Here is Organicoa.

Organicoa is a cocoa shop (currently) at Lafayette St. in SOHO. The makeshift ping pong table instantly caught my attention- just the excuse you need to walk into the shop for some hot cocoa in the colder than usual weather. The leadership team happened to be around, was very warm to talk with, and was enthusiastic about sharing the organic theme behind the products and the merchandise.

The cocoa brought back memories of some great cocoa I enjoyed over a decade ago. One product comes close to the Organicoa taste- Milo. Yes, the Aussie drink.

The shop had small, bite sized cookies to go with the hot cocoa. Also, you don't have to buy hot coca to play ping-pong. :-)

How Do You Find It?
The facebook page: http://www.facebook.com/pages/organicoa/315291760276?v=info

Green Shoots?
A great product and an enthusiastic team. The team had taken over unused store space while the real estate firm looked to find a leasee for the the space. They aren't waiting around to make their venture happen.

The Deal- The Marketing Strategy
Why would I talk about this startup?
Note: These perspectives are all mine and have not been discussed with Organicoa.
* Great product- It reminded me of some great cocoa I have had previously.
* Bite-size cookies- complement the cocoa. The size also gives you leverage to manage pricing and margins.
* Cup sizes- I saw a single cup size. The current "pilot" (my adjective) location gives them some time to test out price points.
* Store ambience- The large, bare store space still managed to ooze a warm, "lets hang out" ambience.
* Positioning- Yes, Organic is healthy is a core message. However, who would have thought about throwing in a makeshift poing pong table on the large store space? Tied to the ambience, "community" comes to mind.
* Theme is core to merchandising- from the colors to the organic content of the merchandise, the team has closed the loop on the message.

Ahem... Constructive Criticism?
None. The idea here is to understand "green shoots" and "animal spirits". The entrepreneurs ostensibly have the right counsel to survive growth pangs.

What do you think?

--
Coming Next on Entrepreneurs Corner: Baked by Melissa- mini cupcakes as Bite-size Desserts?:
http://randomjunkyramblings.blogspot.com/2010/01/entrepreneurs-corner-baked-by-melissa.html

Aiding Economic Recovery in a Recession- The "I" of the Tiger

2010-01-24T15:13:00.000-08:00

Aiding Economic Recovery in a Recession, a.k.a. The "I" of the Tiger, from the desk of Bengal-Tiger-Crackling-With-Ideas.

Executive Summary: There are various ideas and approaches being thrown about to help economic recovery out of this recession. Below is a recently published WSJ article by M. Zuckerman****. He suggests budgetary control, but also spending in "regeneration" programs focused on technology and infrastructure. We look at these through the lens of the GDP. We will expand on this and finally tie this in with Innovation and Animal Spirits.

The Background- Aiding Recovery
There are two broad streams of thought when it comes to aiding recovery. One focuses on cutting all cost and bailout toward balancing a budget, with "let it (a company) fail" as the mantra. The other focuses on providing large doses of temporary stimulus that would be followed by an extended period of belt tightening.

Below is a recently published WSJ article by M. Zuckerman**** that seems to belong to the second stream of thought. He suggests budgetary control, but also spending in "regeneration" programs focused on technology (tied in some way to innovation) and infrastructure.
The Article:
http://online.wsj.com/article/SB10001424052748703837004575013592466508822.html?mod=loomia&loomia_si=t0:a16:g2:r2:c0.133655:b29954458

Proposed Solution: The GDP Lens
Looking at it in terms of the GDP, where GDP = C + I + G + (X - M), the article can be summarized as:
Big C (Consumption) goes down, G (government investment) goes up to assist in increasing I (private investment), and eventually "I" will limp back to normal, finally leading to a ratcheting down of G. Note that I am not talking about X - M right now.

I will admit that investing in infrastructure and technology via government regeneration sounds great. That's supposed to be the "soft", "behind the scenes" aspect of government spending led recovery in this equation. We can also look as some background on debt and economies below:
http://randomjunkyramblings.blogspot.com/2009/12/debt-and-economies.html

Proposed Solution: South Korean Precedent?
Now, South Korea seems to have pulled off something similar to become an OECD economy. South Korea racheted up debt to support imports of technology and machinery, which led to an increase in exports, and kickstarted private investment. The Chaebols, in this case, were instrumental in this maneuver.

* However, can this maneuver by South Korea be called a precedent?
* Was it, and is it now, easy to pull off?
* Could you call the Chaebols in South Korea a strong government-industry partnership?
* Is a very tight government- private industry partnership feasible in the US?
* Does the tight partnership help in managing and spurring innovation? If yes, is the spurring of innovation, and eventual reovery, quicker or slower than in other approaches?
* Can an increase in G truly substitute, or directly lead to, for an increase in "I"?
* Does an increase in G, at best, keeps the social fabric together, and provide a base on which "I" can rebuild? If yes, is there a minimum and a maximum turnaround time for "I", coming out of economic shock?

Perspectives on how economic recovery would assets itself globally are linked below:
http://randomjunkyramblings.blogspot.com/2010/01/economic-recovery-patterns-and-globally.html
Now, lets focus on the "I" of the Tiger.

The "I" of the Tiger- Funding the Recovery
How do we bring "I" back into business? The government could directly hand money to individuals and businesses, or it could hand it to banks and cajole the banks to make the right lending decisions. As we know, too much liquidity brought us to the real estate bubble. So, lenders/ investors/ government/ banks- whatsinaname? - must exercise "good judgement" in their practices.

* Do we have enough "good judgement" to go around for the massive influx of funds bottlenecked in the financial system/ sitting with the government?
* How do we prevent another bubble?
* On the flip side, how do we ensure that the distribution system works, makes money and hence leads to economic activity?

I am reminded of a conversation at a solar energy panel in 2008, where some folks were of the opinion that funds for solar energy projects were available, but they were tied up with the government (DoE?). The government had a poor track record of investing and ideas floating around including getting investment bankers to the party.

Since we are thinking about the what and the how of aiding economic activity, lets talk about innovation.

Technology and Innovation
Now, I have previously talked about innovation- an example is the link below.
http://randomjunkyramblings.blogspot.com/2010/01/innovations-impact-on-economy.html

However, lets get into some detail.
* Do good, fundable ideas arrive in some sort of random manner, or can we increase them by just waving money (and tweaking some more factors, if you like. E.g. increasing unemployment, etc.)?
* The VC industry is currently undergoing some sort of contraction as well.
* Research states that MITIE's (an arm of the Japanese government) investments in the electronics industry did not have a significant impact on it.

Animal Spirits
This is where "Animal Spirits" comes into play. You could call it the natural ability of a people to take risk, to innovate and/ or to build. Naive optimism, if you like. Some previous thought on Animal Spirits can be found here:
http://randomjunkyramblings.blogspot.com/2009/07/art-of-stimulus-and-economics.html

Are people taking risks to build something they believe in? I recently stumbled across a little cocoa shop in the city- the team had taken up an empty store for their venture while the real estate company looked to fill the space. Very enterprising, and they had a good product too! I really hope that company does well. More about it here:
http://randomjunkyramblings.blogspot.com/2010/01/entrepreneurs-corner-organicoa-and.html

Conclusion
The cocoa shop example tells me that the US is still a great place to turn good ideas into great engines for growth. I am keeping my fingers crossed for all the good, bright folks out there who have found/ are about to find a great idea.

What do you think?

Some more thoughts on aiding economic recovery can be found here:

http://randomjunkyramblings.blogspot.com/2009/07/economic-crisis-and-art-of-stimulus-to.html

--
*****Note: The article was posted on a macroeconomics forum by Prof. Rosensweig to kick of a debate on approaches to recovery. The ideas here were posted in a condensed form at the form on January 24, 2010.

Economic Recovery Patterns and Globally Divergent Challenges to Recovery

2010-01-24T15:12:00.000-08:00

Executive Summary: Some interesting ideas, including one by Stiglitz (link below) were proposed to manage the global financial crisis. How do those ideas look now? Do we have a path to "full" recovery yet?

Solutions and Paths to Recovery
I had talked about an interesting article by Stiglitz toward a co-ordinated approach to the global financial crisis below:
http://randomjunkyramblings.blogspot.com/2009/01/stiglitz-wrote-interesting-article-in.html

Globally Divergent Challenges to Recovery
The Economist had two articles, below, on paths to recovery that add more perspective to Stiglitz's article:
The Great Stabilisation
http://www.economist.com/opinion/displaystory.cfm?story_id=15127608
Leaders and laggards
http://www.economist.com/businessfinance/PrinterFriendly.cfm?story_id=14816736

What do you think?

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Economies and Unemployment Numbers

2010-01-24T15:11:00.000-08:00

Executive Summary: How are different economies handling the levels of unemployment numbers they face due to the economic crisis? One approach is to look at unemployment numbers across economies*** and then look for factors across various economies that would help them manage the rise in unemployment. We wind up by considering education, skills and animal spirits as potential factors for recovery, and identifying questions that will give us more granular understanding of how governments can impact recovery.

Some Country Unemployment Rates
The Economist had a great chart in the fourth quarter of calendar year 2009 that showed pre-financial crisis and post financial crisis unemployment numbers. If you compare post crisis numbers, Spain looked to be in much more pain than the U.S., coming in at 19.3%, with Germany looking to be relatively better off at 8.1%. Despite Spain, the Euro area may have seemed to be handling this pretty well- with the unemployment rate under 10%. Australia seemed to be doing fantastic at 5.7%.

Changes in Country Unemployment Rates
However, when we look at the relative changes from pre to post-crisis numbers, an interesting story emerges.
1. Spain's unemployment rate had changed by a multiple of 1.7 (70% increase).
2. The US rate had changed by a multiple of 2 (100% increase).
3. The British rate had changed 2.5 times. The Japanese rate changed by a little more than that. The rate for France and Netherlands had changed by a multiple of 4.
4. The German unemployment rate had change by more than a multiple of 8!
5. The Australian unemployment rate had changed by a factor of 3.

Finding the Questions in the Numbers- Before Finding the Answers
Interesting numbers? There's more food for thought below.

1. How are specific regions affection these country numbers? E.g. Spain has abysmal numbers- are they tied to a specific region or a sector?
* Geography and sector: In the U.S., California has been among the worst hit economies. A real estate bubble is one cause of the problems.
* Other categorizations: The Indian economy may show a dichotomy with the rural markets being more buffeted from global turbulence than the urban markets.

2. What do these reported numbers mean, on the ground, beyond the reporting methodologies?
* In the US, the "real" unemployment rate is being touted at 16% as people are no longer looking for full time employment.

3. What do the low pre-financial crisis numbers in certain economies mean?
* Global trade: 43% of the Australian economy is driven by trade. Its trade with China and East Asian economies has increased significantly in the past few years.
* Socio-Economic & Political Support Systems: European economies have significant support tools (including labor laws) built into the socio-economic system.

4. What does the wide variance in % change in unemployment rate mean?
* Impact of Global Trade: The German, Australian and Japanese economies have trade as a higher component of their GDP, compared to US which has consumption as a massive component. Does that explain their unemployment rate multiples being higher than those of the US?
* Impact on Recovery: Does a higher mutiple of unemployment rate mean that the economic recovery for these economies would take longer?

5. Does a country's pattern of a country's/ region's economic structure impact the behaviour of the unemployment rate- runaway unemployment, exponential unemployment, high/ low bounded unemployment?
* Trade with (Still) Growing Partners: Consider Australia, which trades with growing economies China and Indonesia. The increase in its unemployment rate was much more than that of the US. Does that mean trade with growing partners is irrelevant to the unemployment rate of a country in a crisis?
* Labor Force Characteristics: Could skills and education create a natural upper bound to an increasing unemployment rate? Or is it something deeper- related to "animal spirits"?
* Recovery: Do certain charts/ patterns of unemployment rate increases lead to quicker recoveries? E.g. Would unemployment rates in a highly skilled sector recover quicker? Could Iceland be an example here? Its unemployment rate changed from an estimated 1% in 2007 to 10% in 2010.

6. How well are country economic systems structured to handle increases unemployment?
* Work Force Finding Work Again: Do economic systems- taxation, socio-economic support features- help the workforce find work again quicker? If so, which economies would recover quickest from the crisis?
* Animal Spirits: What role do "animal spirits" play here? Would "animal spirits" be dulled by excessive state support during a crisis? Would states that provide a clear path for "animal spirits" to run free recover fastest? Does the previous question imply that states can "encourage" animal spirits in a particular direction? Does that hold up against research on state support for "private" innovation? How are the two scenarios different?
* Recovery: What elements of the economic system would lead to the quickest recovery? Would unemployment rate be the only ture indicator of a recovery? Case in point- Japan.

A Country Economic Employment Absorption Index?My first reaction was to consider building an index to compare country economic systems to indicate which ones would recover quickest from the crises.

While reading papers comparing labor markets like the US and France would be the first step, currently, the World Bank has some indices that attempt to characterize the flexibility of economies in labor markets, based on a study of labor market regulation across economies:
http://www.doingbusiness.org/ExploreTopics/EmployingWorkers/

Prof. Rosensweig*** suggested looking up "Labor Market Flexibility" and notes from the OECD and the ILO. I have found some interesting perspectives in some Economist articles. You are welcome to challenge the ideas presented below.

Readings from the Economist
European Approaches to Unemployment
http://www.economist.com/opinion/PrinterFriendly.cfm?story_id=14803179
http://www.economist.com/theworldin/PrinterFriendly.cfm?story_id=14742319
European Decline?
http://www.economist.com/world/europe/displaystory.cfm?story_id=15065405

Globally Divergent Challenges to Recovery
The Great Stabilisation
http://www.economist.com/opinion/displaystory.cfm?story_id=15127608
Leaders and laggards
http://www.economist.com/businessfinance/PrinterFriendly.cfm?story_id=14816736

Promoting Entrepreneurship
http://www.economist.com/businessfinance/PrinterFriendly.cfm?story_id=14743944

What do you think? Stay tuned!

*** First discussed (including some of the questions raised) at a macroeconomic forum guided by Prof. Rosensweig on Dec. 15, 2009.

Innovation's Impact on the Economy

2010-01-24T15:08:00.000-08:00

Executive Summary: We have perspectives on measuring innovation's impact on a company and even on a sector. How do you measure innovation's impact on the economy? Would this information help government/ economic decision-making in any way?

The Background
There is some interesting an exciting work around innovation and organizations- The name Clayton Christensen immediately comes to mind. There also is some insight on innovation an industries- specifically clusters.

At CES, 330 companies joined 2500 existing companies in debuting 20,000 products. Now, given all the hype generated around the iPad and around CES 2010 in these tough times, how would you attempt to measure innovation's impact on the economy?

The Avalanche of Questions
* Does innovation make a significant dent on the economy (especially if the economy is driven by the Big C- Consumption)?
* Does innovation become more, or less, important during tough times for the economy?
* Does innovation help in economic recovery?
* What kind of innovation is best for economic recovery and well being?
* How do we categorize innovation- diruptive, incremental and something-in-between?

One Method to the Madness
Lets indulge in some rogue behavior and dive in approaches. We can then step back and evaluate value and ease of obtaining data elements of each approach. One approach would be to add up all the revenues of "innovative" products et voila! Given a consumption economy, does it really matter?

* You might argue that the revenue from some complex technique- say the legal mechanism that allows sovereign funds to invest in key infrastructure assets- may not easily be classifiable as an "innovative product" or service. Fine. Make an executive decision- in or out, or even halfway in.
* You might also argue that some of these products may have been manufactured elsewhere- well, then that shows up as trade or investments doesn't it?
* Why are we only looking at revenue? What about the rest of the financial statements of the firm in relation to the product?

Another Method to the Madness
Now, do you believe that the way out of a current economic quagmire is to focus on production of goods and services, and start saving?

How about trying to build an optimization function/ index that tries to minimize Big C (consumption) in the GDP?

The Model
Could we start by categorizing innovation with this objective in mind? Yes, it is a different way of thinking, and I am pushing the envelop a little, but I am sure we can come up with some sort of back-of-the-envelope index? It, tongue firmly in cheek, need not even be as rigorous as zero carbon footprint.

The Data
What do we really need for a rigorous approach here? Firm financial statments broken down by products? As easy as ABC (pun intended with Activity Based Costing)? Also, mapping these components to their net effect on the elements of the GDP?

What do you think?

Here's a crazy thought:
Would this sort of granular data help the government make more effective decisions in the interest of the economy?

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Consumer Electronics Show ( CES 2010 ): The CE Ecosystem and Opportunity I

2010-01-05T04:00:00.000-08:00

Executive Summary: A perspective of the ecosystem behind CES 2010, to help you manage the complexity of change it would deliver at your doorstep, and to help YOU find opportunity- for new products, or for expanding the reach of existing products- in this ecosystem.

Introduction: The Who.

Who would be you, a.k.a. the target audience, here? You are interested in CES 2010 for various reasons. Here a spectrum:
1. The Consumer- "Should I buy that 37 inch 120Mhz 1080p LCD TV in Spring?"
2. The Product Guru- "So what's out there that I should watch out for?"
3. The Marketing Guru- "Mobile ads for my ad dollars?"
4. The Finance Guru- "Productivity for the company dollars?"
5. The IT Guru-"I have cloud on my mind... um... what could this lead to?"

Granted, this is a little bit of overkill for The Consumer, but don't discount the Gadget Gurus among us.

Introduction: The What and The How.

The Consumer Electronics Show / CES 2010 promises to be as exciting as ever.With over 2800 exhibitors and about 20,000 new products, it can be a dizzying experience. You may have a priority list structured by companies, products, target consumers, sectors, etc., to manage the scale, but the complexity can be mind boggling.

Why are we interested in it? In terms of innovation and externalities, the aggregate impact of CES could well be similar to NASA's moon landing effort in the 1960s. (Note to self- research the innovation parallels :-)) Consumer, consumer oriented businesses, and even intra-business and B2B structures may be impacted.

Framework Overview: The How.

Below is an ecosystem view of the players at CES. Industry veterans with broad experience across the consumer and technology space may find this familiar and similar to approaches they have developed over time- for the rest of us, its and interesting tool to snapshot this evolving industry.

The Strata
The picture can be broken down into the following strata:
1. Consumer
2. Applications + Content
3. Platforms
4. Core Infrastructure

So What?
For the snapshot, or even as a first pass, each strata can be structured as a linear ecosystem with its supply chain. The fun begins when you map it out and start seeing the interconnectedness, even a cliched convergence, across the board.
The next "order" of approach would be to note the elements outside the ecosystem. However, that's for later.

Content for an Electric Toothbrush?
Yes. In this case, content is all the MindShareWorks (TM) that goes into getting a consumer to buy and sustain usage of the mighty electric toothbrush.

As Easy As 1-2-3-...?
Yes... and No. You still have to do the hard work to optimize this tool for your objectives. If you are, say, an investment analyst, you still have to put in the hard work to learn and leverage this approach in the sector.

The Strata Attributes
We could use standard market mapping tools like
1. Competitiveness,
2. Number of Market Participants, etc.

The Devil's Advocate
Hello! This reminds me of the Five Forces Framework: Well, hang in there- there is value in getting specific and structuring it this way. The So What? should have sold you on this already.

Stay Tuned! More to come in the mapping.

What do you think... so far?

Debt and Economies.

2009-12-10T05:03:00.000-08:00

From time to time, we get data, and news, on debt, and how it is affecting country economies, corporations and individuals. Sometimes, with so much going on in terms of the impact of debt on corporations and individuals, the value of looking at debt's impact on country economies may not be obvious. Or perhaps, the impact of news from Dubai made you go "Wha?".

While economists may not always (!) be successful in demonstrating the interconnections between country economies, corporations and individuals, through neatly tied in, accurate and precise models, we still have a sense of how these interconnections affect us.

Say, a country's debt troubles affect the medium to long term rates it offers on government debt. If an industrial sector company, say in the infrastructure sector, has limited financing options, this impacts the internal hurdle rate that the CFO would set for the company's internal projects. This, in turn, would impact a division's ability to innovate and price products to its customers, which, in turn, could impact the sector's ability to service its individual consumers. One of the many possible outcomes- you, as a utilities consumer, end up paying exorbitant electricity charges for power served off an outdated grid that wouldn't let you leverage advances in renewable energy within your home.

You may argue that economies are complex systems, and practically every outcome could be termed an "unintended outcome", but that does not mean we throw the baby out with the bathwater. It pays to "watch" the macroeconomic world around us.

Lets look at the impact of debt with country economies on returns on long term government bonds. Here's an article that should make you think:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15016142

This is a quick review of recent perspectives on debt's impact on country economies to provide background on :
Japan:
1. Deflation:
http://www.economist.com/opinion/displaystory.cfm?story_id=14966237
2. Managing Debt:
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14972943

Dubai:
1. Sovereign debt and risk:
http://www.economist.com/opinion/displaystory.cfm?story_id=15017205
2. Potential lessons from market reaction:
http://www.economist.com/displaystory.cfm?story_id=15016168

Speculation about an EU country default:
http://www.economist.com/businessfinance/economicsfocus/displaystory.cfm?story_id=15016124

Are there any other economies you believe that need a closer look? Economies in Asia or LATAM, perhaps? Why? What could be the potential impact?

What do you think?

Photography Series: All That Glitters Is Not Gold.

2009-08-25T17:43:00.000-07:00

From composing words, to composing images.

The theme here is the contrast between a meditative stone buddha and a glittering gold column behind it.

Taken with a Sony DSC T1 digital camera. Taken in the afternoon sun, while lying on searingly hot stone to get the right light for this photo.

Location: Temple of The Emerald Buddha

Data, Privacy and Social Media: Impact on Analytics and Tools

2009-08-19T05:59:00.000-07:00

Executive Summary: How does data, along with the constraints on it, impact web analytics tools and the industry? How do you start structuring your thoughts about data's role in this industry?
Note: This came about after some rumination on the way the web and social media are being used by businesses, and this post has been updated with some of those thoughts to help continuity.

My last couple posts have been threatening to run down this alley for a while, but I realized that Data, Privacy and Social Media need to be addressed together in a separate post. I shared these thoughts with Alan Chapell, Chapell & Associates, after a chance meeting with him at an event before the Affiliate Marketing Summit.

Do Privacy Issues Impact Data Access for Analysis?
Yes, especially when you are not the primary service provider.

When you think about Data, Privacy and Social Media in the same breath, issues like those that Facebook has recently faced come to mind:
1> The criticism:
http://consumerist.com/5150175/facebooks-new-terms-of-service-we-can-do-anything-we-want-with-your-content-forever
2> The response:
http://blog.facebook.com/blog.php?post=54434097130

It is important to note that this recent case is part of a continuum of controversies over access to and sharing of online customer information during the past decade.

Data privacy is just one of the factors impacting the web analytics industry. Hence, to assess the impact of data related privacy issues on web analytics for social media, you need to drill down for insights in the following manner:

Drill Down Level 1: Analytics, Market Structure and Client Trends
1> State of the Art in Analytics.
2> Client Requirements.
3> Market Structure.

Drill Down level 2: Client Needs and Impact of Data
Insights from areas 1, 2 and 3 above will help you create a picture of:
1> Industry Objectives: Met and Unmet
These are objectives that the web analytics industry can currently help its clients meet. E.g. What metrics can be measured, and how do they translate into impact for the client?

2> Data Access and Usage: Reality, Needs, Gaps
This is role data currently plays, and can play, in the industry. E.g. What data, out of the available data sources, is currently utilized, how is it utilized, and how can it be utilized?

Drill Down Level 3: Data Privacy Constraints
Once we have this level of analysis, we can gain an insight into the impact of current privacy constraints on the industry. Importantly, we also can overlay various combinations of data privacy constraints to get an insight into the role data privacy can play in the industry.

Drill Down Level 1: Below are some questions that help us get insights:
1. State of the Analytics Art: What is the level of skill and tool maturity of social media companies in terms of tracking social networks, and allowing ad targeting around them? Some additional evaluative questions can be found at my previous post below:
http://randomjunkyramblings.blogspot.com/2009/08/ads-applying-web-analytics-tools.html

2. Comparing Traditional and Social Media Analytics:
An alternative to consumer targeting via social network analysis is targeting via demographic and psychographic analysis. Here companies like Nielsen have developed a set of consumer personality profiles. Are social media sites developing such profiles?

3. Third Party Analytics:
How do third party analytics compare with the State of the Analytics Art? Specifically, (in terms of providing social network access to third party providers for analytics) are social media companies taking an API and metrics sharing or a raw data sharing approach? This impacts the competitive environment in the analytics industry.

4. Client Needs:
What are clients doing in the web and social media space? What are the client objectives in this space? Are they looking at demand generation or demand fulfilment? What would they like to/ need to measure?

5. Market Structure (and Opportunity!): Who are the major players? Is the market fragmented? Are there alliances in this market? How strong are service provider- client relationships? Do analysis, metrics, or data clearinghouses exist?

The opportunity!: Is there a market for "clearinghouses" for analytics that would provide media buyers access to social media consumer data across platforms? In reality, a "clearinghouse" is not easy to achieve- E.g. In the brick-and-mortar retail world, Walmart does not share its scanner data.

The Background
How did I arrive at this post? My last couple of posts have been pointing toward looking at Data, Analytics and Social Networks through the privacy lens:
1. Data, Privacy and Customized Brand Metrics:
http://randomjunkyramblings.blogspot.com/2009/08/sustaining-brand-conversation-behavior.html
How do you deal with a profusion of metrics which often have an unclear context? We need metrics with clear semantics. Some of these metrics may be custom created for a specific brand, consumer profile, activity and social media context.
Future Shock
While generic, industry standard metrics are important, there is a huge *future* potential for metrics customized to the brand. These will hinge on the data collection capabilities of social media platforms, and their ability to share it in a cheap, safe, anonymized manner with third parties for further analysis. Additional factors that come into play- quality of data, privacy concerns and analytics capabilities.

2. Data, Privacy and Web Analytics Tools:
http://randomjunkyramblings.blogspot.com/2009/08/ads-applying-web-analytics-tools.html
3. Can you utilize the social network based targeting tools in conjunction with non social network based predictive analysis tools to minimize errors or optimize marketing spend?
Don't Forget Data: The Root of All Analytics
While it is easy to get lost in the tools and their trade-offs, don't forget the data. Your data- what attributes are available, access, usability and quality- may dictate the choice of tools.

What do you think?

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Web Analytics: Social Network Analysis Tools for Ad Targeting.

2009-08-19T05:58:00.000-07:00

Executive Summary: Are you looking at social network based ad serving analytics tools? How do they stack up on the measures below?:
1. Are they mature enough to provide "error" analysis (say Type I/ Type II) on the targeting?
2. Can you compare the "error" from social network based analytics tools against the error using non social network based analytics tools?
3. Can you utilize the social network based targeting tools in conjunction with non social network based predictive analysis tools to minimize errors or optimize marketing spend?

Why is there no focus on cost above? Apply cost factor weights to the results from the questions above and you have your ROI!

How To Develop Criteria For Evaluating Social Network Analysis Tools
From the Blueprint-for-winning-Social-Network-Analytics-Orders Dept., the How-Do-I-Start-a-Competitive-Analysis-of-the-Marketplace desk.

What About Social Network/ Graph Analysis for Marketing?
I have tinkered with various "traditional" analytical tools, like applying predictive modeling for web analytics, to looking at web server log files to analyze "eyeball" trends during the early days of the Internet boom, so, a recent post below reignited my interest in social network analysis for serving targeted ads:
http://www.marketersstudio.com/2009/08/the-social-graph-ad-targeting-buyers-guide.html

The post referred to a Knowledge@Wharton article on Network Based Marketing:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1637

This article had some interesting insights:
Insight 1: Social Networks Help Us Find Like Minded Buyers
Another possibility is that because people often tend to talk to people like themselves, their buying tastes would be similar regardless of whether they ever discuss the product. "Social theory tells us that people who communicate with each other are more likely to be similar to each other, a concept called homophily," the researchers point out. "...Linked consumers probably are like-minded, and like-minded consumers tend to buy the same products."

Insight 2: Social Networks Help Target Buyers More Effectively
"In addition, analyzing the network allows the firm to acquire new customers who otherwise would have fallen through the cracks, because they would not have been identified based on traditional attributes."

The Power of Non Social Network Analysis Tools
I can attest to the fact that with non network based- a.k.a. traditional analytics- tools provide you incredible ways of reaching out to your target audience. If you have the data- various demographic, psychographic or geographic attributes- some of these tools can help you:
1. Target your audience effectively,
2. Give you a sense of the targeting errors (Type I/ Type II) with the model,
3. Help you rank order your targeting efforts by efficacy, and hence optimize your marketing dollar.

Comparing Social Network Based Marketing Tools vs. Existing, Non Social Network Tools
The first thought at comes to mind is whether social networking based ad targeting tools have matured to provide these features. Specifically:
1. Are they mature enough to provide "error" analysis (say Type I/ Type II) on the targeting?
2. Can you compare their "error" against the error using non social network based analytics tools?
3. Can you utilize the social network based targeting tools in conjunction with non social network based predictive analysis tools to minimize errors or optimize marketing spend?

Don't Forget Data: The Root of All Analytics
While it is easy to get lost in the tools and their trade-offs, don't forget the data. Your data- what attributes are available, access, usability and quality- may dictate the choice of tools.

In the Future Shock section of my previous post below:
http://randomjunkyramblings.blogspot.com/2009/08/sustaining-brand-conversation-behavior.html
The ability to develop customized brand metrics "will hinge on the data collection capabilities of social media platforms, and their ability to share it in a cheap, safe, anonymized manner with third parties for further analysis. Additional factors that come into play- quality of data, privacy concerns and analytics capabilities."

Data privacy currently remains an important factor- more in a later post.

Aren't You Forgetting Computing Power?
I am discounting computing power as a factor. I will not tell you why. :-)

Conclusions For Social Network Based Ad Targeting
Non social network based marketing tools are pretty powerful. The questions above give you some insight into decisions related with integrating your existing analytics capabilities with social network based analytics. For the service providers, this is your blueprint for winning orders.

What do you think?

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Sustaining a Brand Conversation: Behavior Tracking and Measurements Notes for Brand Marketers

2009-08-10T04:58:00.000-07:00

Executive Summary: How do you deal with a profusion of social media metrics which often have an unclear context? We need metrics with clear semantics. Some of these metrics may be custom created for a specific brand, consumer profile, activity and social media context. We could create two categories of metrics- generic, infrastructure metrics of the type that are commonly thrown about and need contextual understanding, and functional metrics that have clear semantics attached.

The Story So Far
We covered a need for strategic thought behind social media marketing investments below:http://randomjunkyramblings.blogspot.com/2009/07/to-strategize-or-not-to-strategize.html

The next step is to generate a picture or customer touchpoints/ interactions with the brand across various channels. Besides qualitative insights, you would like concrete measures that support these insights.

There are challenges in tying in consumer behavior in a "regular" distribution channel with that across social media channels. Leveraging your existing, real world consumer profiles in the social media world is a separate theme. Our focus in this post is to find ways to measure and track consumer behavior in the social media channels.

Challenges with Interactive Metrics Today
There are two challenges with social media metrics today:
1> A profusion of metrics.
2> A need to understand the context in which these metrics are being generated.

David Berkowitz has a great post here on the various metrics available to marketers today, and a proposed Cost Per Social Action (CPSA) metric:http://www.marketersstudio.com/2009/08/cpsa-cost-per-social-action-the-new-pricing-model-for-social-media.htmlThere are third party companies like Visible Measures doing interesting work as well.

As for context, a wise man once said, context is everything. Does a metric mean the same coming from a face to face interaction as opposed to one over twitter, or even one from a different social media platform?

A Potential Solution
Some new metrics are needed. However, they need to be functional in nature. By functional- I mean that the metrics need to carry a consistent meaning for brand marketers. CPM clicks could be meaningless in some contexts. You might argue that this is true of all metrics. True. Hence the need for metrics with specific meaning and context attached to them.

I am not saying this is the end of the existing metrics. We could have two classes of metrics- the infrastructure metrics and the functional metrics. All metrics have semantics, hence I am calling these new metrics "functional" metrics, instead of calling them semantic metrics.

Future Shock
There lies the key. While generic, industry standard metrics are important, there is a huge *future* potential for metrics customized to the brand. These will hinge on the data collection capabilities of social media platforms, and their ability to share it in a cheap, safe, anonymized manner with third parties for further analysis. Additional factors that come into play- quality of data, privacy concerns and analytics capabilities.

What Can We Do Now?
While it is great to theorize about the future, there is opportunity today to develop measures that make sense for a specific brand, consumer profile, activity and social media context.
You are welcome to contact me for a conversation on these.

Update 1 (Thanks to David's followup): Functional Metrics Example
Craig has a great illustration of my distinction between infrastructure and functional metrics here:
http://www.funnelholic.com/2009/03/12/memo-to-the-cfo-3-lead-generation-metrics-that-matter/
Cost Per Lead (CPL) could be called an "infrastructure" metric, as opposed to Cost Per Opportunity (CPO) which could be called a "functional" metric. CPO is tied to the lead and pipeline generation funnel, and not to the various tools and mechanics that cause CPL number variation. CPL feeds into CPO generation.

Update 2: Caveats and Another Functional Metrics Example
The challenges the metrics are expected to address:
1. In metrics, we often miss the forest for the trees. As I have mentioned before- Marketing is following Social Media.
2. Given the context of the million dollar Superbowl ads, we need to build the kind of "bridges" in social media that already exist in traditional media and which allow traditional media to justify its spend to some extent. That's a separate problem.

So taking the sales theme further (you can see I am trying to leverage my B2B sales/ account management experience) here's what I would call an infrastructure metric derived out of a sales force effectiveness ratio: social media effectiveness ratio = social media "wins"/ customer "contacts".

Now, you might call sales force effectiveness metric a functional metric that has been translated into an infrastructure metric. True, wins and contacts are tied to the platform. We then build a cross platform metric that takes this data and spits out the "functional metric" results.

The Four Philips brand equity measures- Uniqueness, Relevance, Attractiveness and Credibility- are a tougher portability nut to crack. However, a quick metric that is "translatable" that would be familiar to brand and category managers- ACV.

What do you think?

Additional Background
A backgrounder to help you develop your own perspective on the ideas here:
http://randomjunkyramblings.blogspot.com/2009/06/brands-economics-blink-twitter-facebook.html

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VC Decision-making: Investing in an Existing Portfolio of Companies.

2009-08-09T09:52:00.000-07:00

Executive Summary: Investing in existing portfolio companies involves a lot of groundwork to be done by the Venture Capital General Partners. Below is an experience recounted by a VC investor, followed by some of my thoughts on the tale well told.

The VC Doubling Down Experience
Fred Wilson has a great post on "doubling down" vis-a-vis portfolio companies:
http://www.avc.com/a_vc/2009/08/doubling-down.html

The Analytical Backgrounders
If you have read a previous generic post linked below, you will definitely enjoy an experienced VC investor sharing his experience above in making the decisions:
1. Creating Value through Operational Improvements: http://randomjunkyramblings.blogspot.com/2009/04/panel-creating-value-through.html
2. Microeconomics, Synergies and Operational Portfolio: http://randomjunkyramblings.blogspot.com/2009/05/microeconomics-synergies-and.html

Identifying a subset of "core"/ "sustainable" (your mileage may vary) investments from a portfolio during tough times is not an easy process even for great investors. The key aspects of Fred's post are:
1>raise funds during tough times, and,
2> choose to pump in more money into the newly identified "core" investments, instead of making new investments.
3> "restructure" existing investments in some way- e.g. strategy, team, cost.

To better understand the VC decision making process, here are some questions you may ask:

1> Fundraising For An Existing Portfolio
- Would you have your "core" investments list, and their follow up round funding needs in hand, when you raised funds?
- Would your fundraising account for possible iterations to this list? E.g. Would your fundraising process include discussions on potential exits and the potential returns to LPs from these exits?

2> Portfolio Picking as Cherry Picking
- Portfolio Company Consultations: Would you choose which investments needed more money from you on a case by case basis? Would this process be any different from board level discussions on company performance, except for more stringent criteria being thrown into the mix?
- Follow on funding Factors: Would the lack of (or unfavorable term sheet conditions in) follow up rounds of funding due to economic conditions force you into considering more investments in the same companies than you normally would?
- Finance Portfolio Constraints: Would you exit firms that had strong potential, but would skew the risk-reward profile of your portfolio?
- Exit Negotiations: What factors would cause you to take a "non core" company off the "for sale" list? i.e. What could cause you to exit the exit negotiations? How many "non core" companies would you have in play for exits at any point of time? Would you keep the window of being part of a follow on syndicated lending team on some "non core" companies?

Another way to quantify this is as follows:
- Company Funding Needs: How may of the newly identified core/ sustainable investment could do without funds from the same VC firm?
- Finance Portfolio Constraints: How many of the investments outside the "core" list had funding needs that the VC firm could not accommodate in the risk-return profile of the reconfigured portfolio, despite strong potential of meeting expected returns?

The Investor Basics
1. (Re)Evaluating financial options can be difficult in tough times over investments you have made which count on an expected future value, but that's par for the course for any investor.
2. The next step is to identify core investments that continue to be strong on performance indicators,and which, in your judgement, will provide strong returns. This too is par for the course for any good investor.

For those who have doubled down in tough times, a simple question to ask would be how many companies you exited went on to provide "spectacular" returns after their exit?

Its NOT So Easy
This only goes on to illustrate that a VC's decision making to exit portfolio ventures is, for starters, pretty difficult on the VC as well.

What do you think?

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The Startup Thought Process Series: Commuter Rants

2009-08-06T05:00:00.000-07:00

Series Initation Note: This kicks off a series on my conversations with folks starting digital media companies with the objective of assisting the enterpreneurs.

The Startup: I met an owner close to rolling out a site for commuter rants. Simply put, the site is a forum for commuters to rant about their commute.

Our relatively brief conversation focused on helping him with the vision/ raison d’être for the site. Snippets of the conversation are listed below. These are really interconnected factors, however you need to be able to think through them linearly once, before you iterate through the options and interdependencies. As with a few startups, these answers may change with time, however, it helps to have concrete thoughts about these questions at the start of the journey.

I. Market Potential
The entrepreneur's first area of uncertainty was: how frequently would a commuter rant at his site? We broke that down into market sizing and frequency of usage.

i. Who is the target user of this site? What is the market size?
What kind of commuter? Someone who takes the NJ Transit or Metro North to and fro work? Or does it include someone stuck on the D.C. beltway on a Friday evening? The idea here is to understand an existing unmet need and customer behavior tied to this unmet need.

For sizing, there are several ways to generate the numbers- by geography, by demographics, etc.

ii. What would the growth and usage trends be like?
Would they be like that of Twitter (where 30% of the users tweet once never to return) or like that of Facebook?

II. Business Model and Market Strategy
We are really thinking about distribution channels, partners, customer relationships, core capabilities and revenue models here, all of which can be expressed pithily as:
Would you prefer a B2C model or would you modify the site for a B2B model?

Note: We explicitly kept aside market defensibility to assist in brainstorming.

A> B2C Model
i. How would you grow the B2C site?
Would you eventually develop features tied to hyperlocal search to enable customer stick? E.g. Regulars in a train compartment can connect with each other?

ii. How would you monetize the site?
Through Ads, and possibly, viral content (to help folks cool down, for starters)?

B> B2B Model
i. How would you grow the B2B site?
After an initial push to bring on site users, would you consider tying up with media companies who may leverage feed from this site? E.g. TV Weather and traffic update has a ticker running at the bottom which shows "selected"/ "near real time" commuter "rants"?

ii. How would you monetize the B2B site?
How many media companies would buy into this? What would such features be worth to the media companies?

III. Product Strategy
Would you roll this out as an independent site/ platform? Or,
Would you leverage existing platforms like the iPhone and/ or Facebook?

The questions for you:
1> How would you have looked at this differently?
2> Would you invest?
3> What changes, if any, would change your investment decision?

What do you think?

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Innovation and Effective Healthcare for The Masses: An Oxymoron?

2009-07-28T05:21:00.000-07:00

I tread carefully when it comes to discussions on optimizing healthcare solutions for the masses because Stephen Hawking's image crops up in my mind with this question: What if we designed a wonderful system that made it really difficult for Stephen Hawking to seek assistance at any point in his life? Replace Stephen Hawking with any person important to you, or who you believe is important to society, and you know what I mean.

Teams designing an effective healthcare system for the masses have challenges on sustaining innovation that are slightly different from those faced by mass market consumer products companies.

For a mass market beverage company, the challenge in supporting innovation may exemplified by the case of the Quaker Oats Company product portfolio acquisition. However, for regulators designing an effective healthcare system, the real challenge in societal optimization of healthcare lies in supporting innovation "pathways" through:
1> supporting basic research, and,
2> providing markets, processes and infrastructure for very expensive drugs to hit the market, and,
3> providing patients means to seek solutions outside the "mass" healthcare system.

For patients that have to pay out of pocket, then the government must make this process seamless, painless, and provide structures that help individuals extract some "economic rent" from (no apparent or direct attached economic benefit to) society. Depending on the context, you could call easy access to private, non profit foundations, to help fund your recovery, a form of economic rent.

In fact, the government may leverage experience with organ transplants for designing these "innovation pathways": http://www.organtransplants.org/understanding/unos/

The three points listed above are examples of the way certain "types" of innovation may stop getting support once creating and sustaining a mass market healthcare system becomes a prime focus of the society. I realize I am effectively proposing an indirect subsidy for innovation. I am in favor of this sort of indirect subsidy, because my hypothesis is that this may have a multiplier effect on drug research. My perspective is that this indirect subsidy would be similar to the investment in national highways in the last century.

What do you think?

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Find Clarity on the Healthcare Debate. Now. Here's How.

2009-07-24T05:26:00.000-07:00

Based on the French Openesque rallies in Congress over Healthcare so far, most folks, including Peter Singer in an NYT article*, agree on some key points:
1> Private health insurance must remain available.
2> Consumers must pay less for healthcare.

So, why are we still debating? The "how" is keeping us busy! You, as the consumer and the raison d'etre of this battle, can seek the following from your representatives:

1> A baseline of the current healthcare costs, overt and covert, by consumer segments.

2> Projected costs for current and proposed healthcare plans.

3> Healthcare market structure definition and guidelines for market agent behavior, tied to measurable outcomes, that all entities- private and government- must adhere to.

In plain old straight talk, the answers to these questions help *you* decide.

Both Democrats and Republicans have leveraged the government as a market agent in the financial services industry. This learning could be transferred to the Healthcare industry. It may shed light on triggers for the government to become a service provider market player and also triggers for the government to exit the service provider value chain to return to just regulating the market.

In terms of cost, talk to any healthcare practitioner and he/ she will tell you its all about incentives. What would you change if an internist is not paid by an insurance company for taking steps that help prevent a more expensive medical condition later because it is not part of her job description? What would you change if you thought someone was recommending tests for sleep apnea when its a case of tonsilitis? This requires clarity on not just market structures, but also incentive processes.

To summarize: These questions with help each party in the debate develop a contextual, competitive positioning strategy to achieve recognizable differentiation in the market through both methods and outcomes.

If you are wondering how we can continue supporting broad innovation in healthcare, see here:
http://randomjunkyramblings.blogspot.com/2009/07/innovation-and-effective-healthcare.html
* Peter Singer's New York Times article on healthcare: http://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html?pagewanted=5

What do you think?

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How do you define "Real Economic Recovery"?

2009-07-18T09:22:00.000-07:00

Two economists, Shiller and Roubini, mentioned recently that lost confidence (animal spirits impacted by fear) was a key factor in worsening economy *:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aERlD846h2XY

The leads to a question. A Big, Hairy, Audacious Question.

How do you define Real Economic Recovery?
1> GDP growth? Economic recovery could be defined as a specific technical recovery from a recession as indicated by GDP numbers.

2> Employment Growth? Would you define economic recovery as a scenario where 96% of the country returns to productive work and innovation flourishes? Would this thought be in line with Schiller's and Roubini's contention that "animal spirits" play a part in worsening the economy?

I threw "innovation flourishes" in there, despite some question over whether government intervention in innovation helps. E.g. MITI in Japan.

3> GDP size? Would you define economic recovery in terms of GDP size? i.e. the world may not be what it used to be, but the world returns to some semblance of "normal" economic activity? Simply put, if financial institution balance sheets need to contract for a return to "normalcy", couldn't GDP numbers contract as we return to "normal" economic activity? Would this not really be a resetting of the GDP scale?

What does this mean to your daily life? Are there other, more effective recovery measures we could develop?

What do you think?

The Big, Hairy, Audacious Context
GDP as a "measure" vs. GDP as an indicator of true economic activity.
To illustrate an extreme case in point, there are remote parts of the world, say a self sustaining tribe in a remote village in India (an interesting example with a dichotomy between the stock market oriented urban economy vs. the rural economy), where people work hard every day to ensure that they can feed themselves. Individuals in this tribe own no land- its a jungle- and they move from clearing to clearing. From their perspective, they live full, healthy, economically productive lives.

However, due to the fact that this tribe exists in a very remote region, it not part of a GDP measurement.

On the other hand, GDP might stop contracting, and even improve for successive quarters, while job losses continue, and few new ideas that truly improve lives are launched.

Government Investment in "Infrastructure" for Economic Recovery
Is government investment in infrastructure a critical tool for economic recovery? If so, would energy and healthcare qualify as "infrastructure"? This based on a loose definition of infrastructure as a series of standard frameworks that simplify people's lives and make them more productive in leveraging their strengths?

E.g. Given the inverted population pyramid, could healthcare qualify to be called infrastructure, just like national highways?

Note: * Thanks to Amit for posting this on the Macroeconomics forum- it got me thinking about this topic again.
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The Art of The Stimulus and Economics

2009-07-18T08:30:00.000-07:00

From the I Told You So Dept., the "Economics is dead. Long live Economics" desk.

Brief Summary: How do we develop tools for governments to take decisions on the economic crisis? Create Socio-Economic Anthropological models that not only leverage standard parsimonious economic models and capital market inefficiencies, but also incorporate people's behaviour, potentially through market research tools. International finance and relative "behavior" of economies needs to be considered as well- stay tuned.

The Economist has an interesting article (yet again- thanks to Lori Sullivan for sharing) on how economics needs to change to adapt to the real world: http://www.economist.com/opinion/displaystory.cfm?story_id=14031376

It wraps up with a wonderful line-"...in the end economists are social scientists, trying to understand the real world". You can read the backgrounders listed at the end of the post, so I will refrain from an I-told-you-so-last-week.

Can Economic Models Actively Help Generate Solutions and Make Decisions?
The honest answer- I don't know. However, analytical approaches need to "improve". Referring to Public Enemies in a previous post was only a half joke.

How?
Economic models need to incorporate additional variables as proxies of elements of the economy. This is more than economics learning from finance and vice versa.
This is more than economics
acknowledging capital market inefficiencies via economic models incorporating the inefficiencies in some way.
People's behavior is also an element of the economy.

Socio-Economic Anthropological Modeling? Or,
How to Get a Context to an Economic Environment?
1> The elements that make up the economy today are different than those in the 1930s. The U.S. economy today has a large services component.

2> The people that make up the economy today broadly differ in age groups, education levels and skill sets. The sectors you may want to stimulate to revive "animal spirits" need to match this demographic structure of the population.

3> People today may also behave differently than those in the 1930s. At the risk of throwing in a *seemlingly* vague commentary, here is an article that attempts to characterize an entire
generation of young Japanese:http://online.wsj.com/article/SB122548483530388957.html

4> Would we go so far as to say that the "animal spirit" of the 1930s was different that the "animal spirit" today? To throw in a little more science into the art, could we utilize market research (say clustering) techniques to characterize behavior of populations?

5> Can we then build Socio-Economic Anthropological models that bring in the "animal spirit" aspect of the economy to more accurately reflect the economy? Then, can we potentially predict the impact of actions meant to improve the economy?

What do you think?

The Background
From the I Told You So Dept., the "because I-have-been-telling-it-so-for-a-couple-of-years, and the-jury-is-not-out-yet" desk
So what am I talking about? Previous posts give you some background:

1> Economic Crisis and the Art of The Stimulus- To Boldly Go Where No Man Has Gone Before? http://randomjunkyramblings.blogspot.com/2009/07/economic-crisis-and-art-of-stimulus-to.html

2> Financial Transactions, Trust and Keynesian "Animal Spirits" http://randomjunkyramblings.blogspot.com/2009/01/financial-transactions-trust-and.html

3> Financial Markets, Economic Crises And Global Co-ordination http://randomjunkyramblings.blogspot.com/2009/01/stiglitz-wrote-interesting-article-in.html

4> There is an international finance component that needs to be analyzed as well. A case in point- the global impact of the Lehmann collapse. Stay tuned.

Economic Crisis and the Art of The Stimulus- To Boldly Go Where No Man Has Gone Before?

2009-07-18T06:40:00.000-07:00

From the "The Art of The Stimulus- The Final Frontier" Dept., the "Economics- Why hast thou forsaken me?" desk.

Christina Romer wrote an interesting guest article in the Economist on the Lessons on 1937:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176

The article states that the response to the fiscal stimulus in the early 1930s was pretty rapid, and cautions against switching to a contractionary fiscal and monetary policy too soon.

My take? I found it interesting that Ms. Romer picked healthcare reform as an example of how the government could bring about long term fiscal stability, given the various trade offs the government can make. Overall, the chart, and the numbers certainly tell a story.

Does Ms. Romer's argument convince? Yet?
Despite the seemingly obvious story we can glean from the chart, I would like to I would like to dig a little more into life and times in the 1930s. This is not my excuse to watch Public Enemies (deft touch there, isn't it?).

What would be the clincher?
I would like to leverage the economic data artefacts of the time strictly as socio-economic archeaological evidence that develop a socio-economic anthropological view (phew!) of the time.

Socio-Economic Anthropological Snapshot? What? Why?
1> If we seek solutions, then we need to delve into why some solutions worked in the past. A cool chart demonstrating exponential growth as a result of a stimulus is really a starting point.

2> How is this different from research already published? Isn't there enough research out there that succintly (parsimoniously) captures conditions in the 1930s via standard economic models?
A great example of how I differ can be found here: http://freakonomics.blogs.nytimes.com/2009/07/10/loneliness-or-cheap-wine/?pagemode=print

3> Socio-economic anthropological snapshot? Phew! Yes, if the objective is to stimulate the economic engine, how else do you do it without understanding the motivations behind the number?

4> How specifically does a "better understanding" help us act? This understanding may tell us whether the current socio-economic climate contains "discontinuties" that would impact the models [**] we are counting on to help us solve the current crisis. This understanding of the discontinuities may help us improve the solution.

5> If it further helps drive home the point, here's an apocalytic scenario I have previously posted about: http://randomjunkyramblings.blogspot.com/2009/05/innovation-sentiment-economics-and.html

What do YOU think? As always, I welcome your insights.

[**} Am I being "circular" here? Or am I truly rejecting economic modeling as an approach?
- My contention is that current models may not help us define solutions.
- At the risk of sounding like a behavioral economist, we need to dig a little deeper into the context and gain insights.
- However, as an agent in a behavioral market, how can I count on I getting real insights on potential differences between the crisis in the 1930s and the crisis we face now?
- Even if I do, should I not be able to find proxy variables to develop a "new model" that leads to an actionable approach?

Note:
1> The ideas were first published on a macroeconomics forum on July 12, 2009 while gaping at Tim Geithner on Fareed Zakaria GPS. Many thanks to Prof. Rosensweig for the wonderful forum.
2> The ideas in the post above are a further elaborate my thoughts below, earlier this year:
http://randomjunkyramblings.blogspot.com/2009/01/financial-transactions-trust-and.html
3> The next post stretches my ideas on economic models a little further:
http://randomjunkyramblings.blogspot.com/2009/07/art-of-stimulus-and-economics.html

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Sustaining a Brand Conversation: To Strategize, or not to Strategize, about Social Media? A Note to Brand Marketers

2009-07-09T05:53:00.000-07:00

Why should you care about the Social Media industry beyond what you are doing in it? Why should you care about how it evolves?

You care about sustaining a Customer Centric Conversation with your customer. That's why.

You are already a step ahead of the competition if you are asking these questions.

Some might question why we need to think about market structures, channels, consumer behavior, and returns on investment in the Social Media industry. Fair enough. There is enough activity in the hyper-competitive Social Media market right now for folks to dive in and get a lot of the work done quickly in funky, interesting ways, while helping the market evolve as a byproduct. We could even discount research that discounts first mover advantage.

Recently, Facebook surged past MySpace in Monthly Unique Visitors. If that news made you wonder how you are impacted, or how your company's busy work in Social Media is impacted, you are asking the right questions.

If You want to sustain a conversation with your customer, without being distracted by the ebb and flow of the social media buzz around you, you know you want to tie in your social media tactics with strategic market insights.

Instead of steps that assist your journey toward an effective social media presence, your search leads you to information on how to get things done. Lets change that. Right here. Right now.

Here are four thought enablers that help you cut through the clutter to formulate a social media strategy.

The Interplay between Marketing and Social Media:

1. Marketing is currently following Social Media: What we define as conversational marketing right now, is just marketing catching up with social media. Social media can be abstracted as a process of developing new channels of communication. How you leverage these channels is driven by your brand. Marketing in these channels will mature when brands begin to consistently leverage the innovation in channels for improved resonance.

2. Marketing Future 2.0 goes beyond Web 2.0: Marketing has a few steps to take before it truly takes off, and leaves social media behind to become a platform. I will hold on my vision for marketing here.

3. The Social Media Industry is a Market: Social media will become a platform and will have a few dominant players like platform markets do. However, the innovation game is not over yet. While some players have taken an early lead and have shown the legs to innovate, social media tools have not reached a communication channel innovation plateau yet.

4. Value: Value, value, value! How do we justify social media spend to a corporate? How do we tie it into the brands, say, in terms of a Brand Equity Pyramid? This is the outcome of some ruminating on my previous blog here: http://randomjunkyramblings.blogspot.com/2009/06/brands-economics-blink-twitter-facebook.html

Needless to say, the note assumes that you already are pursuing social media opportunities for your brand. If you do not have your feet wet yet, you are welcome to read some of my previous posts below for some ideas- I would heartily welcome a conversation on those points of view.

http://randomjunkyramblings.blogspot.com/2009/06/economics-brands-blink-twitter-facebook.html

This loops us back to the next post that started this train of thought, proving that Execution -> Metrics -> Strategy are not linear, but form a circular reference, and spiral into greater maturity as the industry matures. Therein lies the risk and the reward.

While I am at it, here's a blatant plug: please feel free to contact me for more! You know how to find me.

Psst... Watch out for my Twitter game- BigBirdBots!

Consumer insights and Social Media trends... Updated: Preview Note to Brand Marketers

2009-07-02T02:19:00.000-07:00

From the "Lies, damn lies and... statistics?" Dept. of Quibble-Over-Who-Said-What, The Mark Twain vs. Benjamin Disraeli desk.

At a wonderfully hosted interactive media event last evening, I sprung 2 stats at a social media strategist, while emphasizing the need to critically look at trends and consumer behavior. The bright strategist I was chatting with was aware of each of them, however, when we put them together and... here, I will let you decide:
1> Average number of Twitter followers: 126.
2> Over 30% of Twitter users tweet once, never to return.

On that note, let me splash some more statistics around this page for further insightful conversation with you: http://blogs.harvardbusiness.org/cs/2009/06/new_twitter_research_men_follo.html

What do you think?

Update: I usually restrict my unrestrained editorializing to face to face conversation. However, thanks to a twitter (Thanks D.B.) note, I will let loose a little. :-D

From the Dept. of Stick-Yer-Neck-Out-And-Live-To-Tell, the Die-Hard-With-A-Clue desk.

Why should you really care about the Social Media industry beyond what you are doing in it? Why should you care about how it is evolving?

The statistics below kicked off an interesting conversation with a social media strategist. The math jumps at you. The average number of twitter followers could be skewed by the 30% who never return, and the Twitter BigBirds TM (Sidebar: CNN and Ashton Kutcher are Twitter BigBirds; No disrespect to Tweet TM). Our conversation converged on the fact that business acumen remains key to success here.

The theme of this conversation dovetailed with the theme of another with Susan Lewis who is at work finding sponsors for her Twitter game. The fundamental question here is: How do we help a corporate entity justify its spend in social media, beyond harking to the old Internet boom eyeball metrics?

Finally, is it just about measurement? What are we looking to achieve with the measurements? Stepping back from the metrics, how should brand marketers be thinking about their social media presence?

More on this in part Duh:
http://randomjunkyramblings.blogspot.com/2009/07/to-strategize-or-not-to-strategize.html

Consumer Insights from News: Market Sizing

2009-06-28T04:53:00.000-07:00

Three events this year have generated a lot of interest from consumers:
1. President Obama's Inauguration
2. Iran Elections
3. Michael Jackson's demise

There are interesting insights to be gleaned from analyzing patterns in data across channels that deliver news -or music, in the case of recent tweets over the Michael Jackson tribute song- to the consumer.

Kick off for Rigorous Analysis?
Keeping thoughts of rigorous analysis aside- how about plotting each of these event on 3 axes? These three events can be compared to other, more "regular" events like the NBA finals. The key point to note is that some of the delivery channels are pretty nascent and they may not have a large universe of comparison points.

The Objective?
The deep dive may help size the market for various solutions, like developing quick reaction advertising patterns that respond to breaking news, to more effective tools for the media and advertising industry. Of course, from experience, I would like to emphasize the sizing can only supplement your own acumen about the market opportunity.

What do you think?

Note: Updated with the 3 axes plot approach to kick of analysis.

Brands, Economics, Blink, Twitter & Facebook: Part II

2009-06-24T21:12:00.000-07:00

Almost titled Part II: Economics, Brands, Blink by Malcolm Gladwell, and Social Networking- Twitter & Facebook. Brevity is the soul of the blog... oops.

Part I of this Post:
Thanks to Twitter, I was reminded of an article on “Predictably Irrational” behavior:
http://www.npr.org/templates/story/story.php?storyId=19231906

Some more background can be found in my Part I post here:
http://randomjunkyramblings.blogspot.com/2009/06/economics-brands-blink-twitter-facebook.html

Marketing and Behavioral Economics.
The day care center experiment on the effects of social and market norms colliding provides interesting results. More importantly, it can serve as an interesting starting point for marketers to think about how to participate in conversations with their customers on social media sites.

Looking at the social media marketing vehicle as a "participant" on the social marketplace, it may help illuminate patterns that help the marketing vehicle navigate uncharted 'mindfields' with their experiential partners (read customers).

While this perspective should not be news to skilled brand managers, the key here would be developing patterns and tools that help brand managers make more effective decisions.

These theories could be used to:
1. Create markets with specific incentives (watch out for unintended consequences),
2. Make decisions that drive the market entity's/ brand vehicle's behavior within a marketplace, and,
3. Leverage various market players' behavior in a marketplace to your market entity's/ brand vehicle's advantage.

Points 2 & 3 can be interpreted as old school, carpet bombing, bulk-broadcast-media-buying strategy & social network or conversational marketing respectively.

Social Media and Behavioral Economics.
A potential application- could it help a brand decide which social media site to develop its presence on, especially if the brand could utilize all 3 approaches to negotiate? There are social marketers that would recommend using the third approach listed above as it is more "authentic". This seems to have become the prevailing thought in the B2C arena.

Where does Microsoft's strategic investment in Facebook, more a B2B deal that has B2C impact, fit across the 3 approaches listed above?

What do you think?

Update: To be even more explicit in my messaging:

1> Everything Must Go!?
As a marketer looking at the channels to reach out to your customer, you may need to understand how to leverage the new channels that have sprung up where your customer is not a "couch potato". As you learn more about the new channels and more about your customer, you will find new ways to apply your experience, knowledge and acumen in the new channels. You do not necessarily have to toss everything out of the window. :-)

2> Marketing Future 2.0
Marketing Future 2.0 arrives in baby steps- while there is an advantage to be being ahead of the learning curve, your best friend is still your ability to distill it into impact on consumer buying.

Now, what do you think?

Economics, Brands, Blink, Twitter & Facebook: Part I

2009-06-24T20:30:00.000-07:00

Almost titled Part I: Economics, Brands, Blink by Malcolm Gladwell, and Social Networking- Twitter & Facebook.... As if that wasn't enough, did I mention Physics? I will, however, refrain from mentioning Star Trek... oops.

Some thoughts on Bob Pittman's perspective of the money making potential of the internet in this post, to give you some background:
http://randomjunkyramblings.blogspot.com/2009/02/consumer-behavior-and-robert-pittman-on.html

Behavioral Economics: Isn't that an oxymoron?
Have you read Blink by Malcolm Gladwell? There is an economics' field that seems to agree with Gladwell that human beings are not all rational masters of their emotions.

Behavioral Economics around us.
Thanks to Twitter (Paula Drum RT), I came across an article talking about behavioral economics:
http://www.npr.org/templates/story/story.php?storyId=104803094

Most of us have helped implement a behavioral economics based solution to the pension enrollment challenge: If you want people to enroll in the pension plan, then automatically enroll them — and let them opt out if they want to.

The article also covers an example of how government intervened to incentivize teens against getting pregnant. Predictably, this will get you thinking about how this theme ties in with prevailing thoughts on financial market regulation. The article cautions that the government could itself become an "imperfect decision maker" as a market participant.

The physicists amongst us must be wondering whether economics and psychology got together to give birth to either the observer effect or the uncertainty principle.

Behavioral Economics and Game Theory.
The article got me thinking about the interplay between behavioral economics and game theory. How would an approach to less-than-fully-rational-decision-making impact game theory cases like prisoners dilemma where rational decision making leads to "seemingly sub optimal" outcomes?

I found a paper that talks about behavioral game theory:
http://faculty.haas.berkeley.edu/hoteck/PAPERS/BGT.pdf

The tweet also reminded me of another article on "Predictably Irrational" behavior:
http://www.npr.org/templates/story/story.php?storyId=19231906

Now, what has all of this got to do with Marketing, Tweeting and Authentic Branding?

What do you think?

Part II of this post can be found here:

http://randomjunkyramblings.blogspot.com/2009/06/brands-economics-blink-twitter-facebook.html

NYC Internet Week: Business Impact of Innovation

2009-06-07T19:14:00.000-07:00

As part of a NYC Internet Week gathering, I got involved in a discussion on business impact of innovation in technology with two representatives from Pond5.com, Dana and Tom.

We discussed the poster child for technological innovation- the XEROX PARC center at Palo Alto. It was filled with the brightest minds who came up with amazing innovations in computing that are taken for granted today. Dana mentioned that the facility is a shadow if it's former self and is reflective of Xerox's current state of affairs.

The center had the first PC like workstation ready in the early 70s (the mouse was at hand in the 60s) and the Graphical User Interface available in the late 70s, but these brilliant ideas lay around within the walls of the facility. However, they captured the imagination of Steve Jobs, who successfully pushed them out to the market and created a successful company out to them.

The question is, was Steve Jobs alone responsible for the business impact of such innovation? Was Bill Gates the primary force? Would you also consider advancement in manufacturing technology, as well as the Palo Alto cluster of innovation bringing skilled individuals together as important factors in the business impact of innovation?

Another thought to consider- isn't Xerox also continuing to innovate in some way? Are there levels of innovation? Based on my brush with managing innovation at a beverage company, can a gated process truly manage innovation?

The impending release of newer versions of the iPhone, and the apparent dependence of Apple stock value on Steve Jobs' presence in the company, are interesting cases that make you probe the nature and sustainability of innovation.

What do you think?

Innovation, Sentiment, Economics, and the Market

2009-05-31T11:47:00.000-07:00

The thought “one company’s cost savings are another company’s lost revenue” below offers interesting economic insight:
{ On Private Equity: Scott Schoen, THL }
http://randomjunkyramblings.blogspot.com/2009/04/on-private-equity-scott-schoen-thl.html

As I have pointed out in this blog based on Shiller’s and Stiglitz’s articles, “sentiment”/ “perception” and other such “soft” or “behavioral” aspects play an important part in the economic engine of a region: {Financial Transactions, Trust and Keynesian "Animal Spirits"} & {Financial Markets, Economic Crises And Global Co-ordination}
http://randomjunkyramblings.blogspot.com/2009/01/financial-transactions-trust-and.html

Economic contraction would lead to a destruction of value through the destruction of existing market players, structures and relationships, before the economic engine restarts. This may lead to a slower recovery. This can be a good rationale for a central bank investing in an economy to keep it afloat in such a way.

However, once we accept that “sentiment” is a factor in the economic engine; could the effort to maintain existing market players, structures and relationships also impact the incentives for the economic engine to generate lasting recovery?

What do you think?

Microeconomics, Synergies and Operational Portfolio

2009-05-31T11:33:00.000-07:00

A case discussion link below would give you background perspective on this post { Private Equity Case: Dialogic Carve Out from Intel}:
http://randomjunkyramblings.blogspot.com/2009/02/private-equity-case-dialogic-carve-out.html

Synergies
I checked with a technology industry focused private equity investor on whether his investment committee considers synergies across its operational portfolio in its investment decision making. After all, technology is a pretty broad term- do they see an advantage in narrowing their focus?

His rejection of the idea was couched in an excellent example. The investment team would not buy competitors. This was a pretty straight forward discounting of the potential of merger efficiencies, and we can list numerous reasons for it- from strategic ones like the hypercompetitive nature of the technology industry, to investment ones like the heightened risk of a larger company’s underperformance weighing down upon the rest of the portfolio.

Microeconomics
However, this should remind you, as it reminded me, of microeconomics. Does rejecting competitors also mean you would reject complements? Strictly as an investment strategy, wouldn’t investing in complements also increase the correlation across investments?

Investment examples in the technology industry would be:
1. Investing in Facebook and Fun Wall, or investing in Twitter and Twitterdeck.
2. Investing in the Transmeta Crusoe process and a windows power management utility for that processor

Would this mean that the investing team needs to have processes in place to monitor revenue correlations across portfolio companies?

The Venture Capital Context
Lets look at this in the venture capital context, discussed in my post here: {Venture Capital: “If it ain’t broke…” Does the VC Model Need Fixing?}
http://randomjunkyramblings.blogspot.com/2009/02/panel-venture-capital-if-it-aint-broke.html

Investing in startups, especially the very early stage ones, needs to account for some strategy shift. However, sometimes even late stage startups may need to adjust their strategy to account for monetization opportunities in tough economic times.

How would the venture capital firm react if this strategy shift made this investment a complement of anther portfolio investment?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

US Consumer Confidence, Economists' Optimism, and the Economy.

2009-05-31T10:27:00.000-07:00

Chatting with a brand manager at a Consumer Goods/ Beverages company recently, I got the sense that the consumer was focused on value and was still buying. So I took another look at the news to put the conversation in perspective:

A. Did someone say "green shoots"?

1> US consumer confidence reports has interesting, and intriguing numbers, this week:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aYRGnAW70og8&refer=home

2> Economists are turning optimistic about the economy as well:
http://news.yahoo.com/s/usnews/20090506/ts_usnews/economistsoptimisticaboutuseconomy

3> Even Roubini has mentioned that we are in the trough phase of the U shaped recession. While he still stands by the possibility of a "perfect storm" in 2010, I am inclined to call this positive news.

B. Are we there yet?
For contrast to the signs of Spring we see above:

1> Dr. Altman recently demonstrated, backed by research, that corporate defaults had hit 8 percent in January.

2> He also pointed out that many creditors are in no position to take companies through a bankruptcy.

3> Additionally, on the consumer front, credit card defaults are still a concern.

Now that we have a contrast between most economists and Doctors Doom and Gloom, what does the impressive rise in consumer confidence mean? 70% of the economy is consumption- so a rise in consumer confidence may, at best, be good news in the short term. So, based on this recent news, we seem to have the right economic tools at work to "salvage" the situation and those tools seem to be having an effect.

However, I still think of this as a zero sum game when it comes to investing (bailout) in pulling the economy from the brink. Here are some thoughts:
1> In 2001, the US government took some steps to "salvage" the situation, that eventually led us to 2008. What are economists suggesting needs to be done to prevent us from ending up in an downward spiral of increasingly severe recessions? Could Roubini's W shaped "perfect storm" really be plain old speculation about "when", not "if", the next storm lands at out doorstep?
2> How will the world pay for this? Could an effect show up in international finance, where some countries pay more for this rebound that others?

While I hope economists continue to huddle to figure out options and tools that will solve some of the problems, these questions give you the context to make decisions that steer you and the enterprise through the storm.

What will you do?

P.S. This note is based on a post on a macroeconomics forum on the morning of 05/31/09.

I later found some interesting articles that provide more structured and well thoughtout arguments. The leader here is Nouriel Roubini:
http://www.forbes.com/2009/05/20/depression-recession-green-shoots-housing-jobs-opinions-columnists-nouriel-roubini.html

Also, Fareed Zakaria's GPS episode, dated 05/31/09, will give you more food for thought, besides the added bonus of seeing Kissinger talk about US options in NE Asia.

A Classical & Fusion Concert at Carnegie Hall

2009-04-30T21:08:00.000-07:00

I attended an Indian Classical & Fusion concert at Carnegie Hall earlier this year. A review of a concert in the series can be found here:
http://www.nytimes.com/2009/05/01/arts/music/01huss.html

My reaction to the concert: I was blown away.

I will admit to being a little starved of good classical performances of any sort for while, let alone live Indian classical. For someone with an untrained ear, I was really counting on flashes of brilliance from the performers to (re)capture my interest. A bit like a how an impossible volley at a crazy angle reminds you how much fun watching a Wimbledon final can be. Based on the names performing, I knew there would be at least a few flashes of brilliance.

The concert was all brilliance AND class. It was like being touched by God. It displayed Masters on top of their game, completely immersed, and reveling, in their trade. It was humbling, as all great displays of skill are, but I felt more like a wide eyed kid in a candy store.

The power of music! The patterns within a musical piece! The patterns within the music of the individual performers! The story that the interplay of instruments in a piece tell you and the story that a sequence of pieces tell you! Wow!

Like a little piece of art you like a little more than others, it even found a little bit of me to connect with. All this coming from an ear as untrained as mine.

I blame it all on the performers.

My jaw still drops (scrapes the floor, really) every time I think about the evening.

Is Private Equity The American Industry that protects American Enterprise?

2009-04-05T15:39:00.000-07:00

Here’s a potential title for future historians to consider for the Private Equity industry in this decade:

Flush with liquidity, which you could call a “Greenspan Blessing”, the Private Equity industry, a truly American Industry, invested over a trillion dollars into American enterprises that were/ are strategic players in their industries, protecting them from a future downturn that would make many vulnerable to hostile takeovers from international buyers.

My thoughts went down this path thanks to a question posed by David Rubenstein from the Carlyle Group.

While lobbyists in D.C. would be salivating at this spin- the idea behind the headline is to answer David's question on the Private Equity industry's place in the economy.

I have an answer that's more an essay, however, I am sharing below some questions that I structured to effectively, and comprehensively answer David's question. Hope this helps you in understanding the Private Equity industry better.

Back to our headline- does it really make sense?
1> Would America’s rebound from the downturn have to lag that of other economies (discounting the opportunities for Brazilian, Chinese and Indian companies) for this to even be a potential story?
2> Can we prove the industry’s deal making and execution can have this unintended, headline making, consequence?
3> Could this unintended consequence have happened as an explicit strategy to protect, store and manage American value? Would this strategy have worked if it were run by the American government?
4> Given America’s history and promise as the land of reinvention and rejuvenation, does this unintended consequence or strategy make sense? Specifically, why save and protect when failure makes you better and stronger?
5> Or couldit truly be an example of reinvention and rejuvenation?
6> Can the Private Equity industry even be called a truly American industry? Could we truly say "Only in America!"?

How would this trend of over a trillion dollars in Private Equity investment have worked out during the 1981-82 recessions? Are the market structures today substantially different than they were in 1981 for the comparison to be odious?

While I have an opinion and can weave a story…

What do you think?

Private Equity Firms and Large Company Acquisitions

2009-04-05T14:28:00.000-07:00

Richard Friedman’s key factors for Private Equity funds targeting large companies- financing, downturn lag effects and compensation limits on management, listed here
http://randomjunkyramblings.blogspot.com/2009/03/6-private-equity-firms-and-large.html

- lead to a host of follow up questions.

Are the public capital markets more imperfect than perfect at corporate governance? In more cases than not, have capital markets been reduced to purely reflecting the underperformer reality of a large company as opposed to packing the bite that enforces change? Fragmented ownership is a factor. But is that it? There are numerous cases of an activist investors that have not met their primary objectives (I am not talking about activist investors whose primary objective is greenmail).

If we look at Friedman’s 3 points, and buy the fact that no team can consistently beat economic headwinds to provide massively outperforming returns, would you call private equity firms spectacular market timers? Gives you a simple screen- find a lag effect, and find a management team that’s already furiously at work to beat it, incentivize it to keep the boat steady, and voila! outperformer returns!

Consistent market timing? Really? A simple screen provides outperformer returns? Consistently?

Now, running a large enterprise that is suffering lag effects of a downturn takes some skill. At the simplest level, the private equity investor can certainly simulate an activist investor and provide senior management the backing it needs to rechannel energies from quarter to quarter window dressing into initiative that dovetail with the exit time frame. The private equity takeover can function as the step change that galvanizes the organization into focusing, even functioning as a hedgehog focused on a target.

Even these “operational improvements” count on:
existing management’s ability to direct, or shake up, existing relationships, or,
the investor’s ability to bring in people that can achieve the investor’s objectives.

Contingent upon incentives working, once the deal is struck, execution patterns and outcomes similar to Post Merger Integration efforts should dominate.

Stepping back, what are the patterns and markers that a private equity investor can use to manipulate the trade offs across financing, directed human capital (read operational improvements), and macroeconomic conditions to achieve outperformer returns?

The question’s underlying axiom is obvious; it is possible, with some consistency, to provider outperformer returns. You now also have a rudimentary structure (dare I say a quant model? :-)) to value the impact of these three components on final returns.

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Panel: Creating Value through Operational Improvements

2009-04-04T04:27:00.000-07:00

The panel discussion kick-off reminded me of a simple brand equity value chain, noted below in a slightly modified manner: look at the market for size and value, and work your way inward into the organization into the capital structure, evaluating improvements at each step.

To tackle the question of creating value in the current economic context, the panelists considered various tactics like evaluating the purchasing power of the customer, to benchmarking various activities of the organization. This can lead to evaluating options like changes to distribution strategy, or even product rationalization.

A Managing Director at Fenway Partners, who has been through the 2001-02 downturn, pointed out that you may save capital, but you are then faced with the challenge of deploying it.

He ventured three capital deployment options- buy debt at a discount, invest in organic growth by looking at operational investments, and invest in equity acquisitions. Investcorp’s analysis on operational improvements making an impact on exit multiples/ firm value fits into this decision making process.

Some questions I considered coming out of the panel:
Growth: Depending on the nature of the industry, and the cash at hand, what would encourage companies to pursue market share growth as a strategy? How are companies allocating resources to strategies that have a longer incubation time for results?
Risk Taking: How are companies deciding on change management risks in the current economic context?
Know Thy Customer: Given that customer segmentation is expected to lead to actionable marketing activities, how would it change in the changed economic context? While investing in understanding the customer may take a hit, how are companies evaluating situations where cutbacks here will hurt more than add value?

One Chart, One Slide to Show It All
Taking these questions and thoughts further, you really come to a simple X-Y bubble chart that lists points in the company’s value chain starting from financing to customer touch points on one scale, and profitability of investments on another, with bubble size being a function of risk.

Corporate Finance: A Decision Making Template
The decision making template behind this evaluation process could be:
1. What is the customer impact? One parameter to consider could be- would this improve customer “stick”? This helps evaluate customer acquistion programs, given that margins are under pressure and most companies are looking to increase volumes.
2. Do we have cash for change?
3. What is the profitability *profile* of each investment? E.g. Do certain improvements investments have "long tail" returns?
4. What is the exit strategy for this change project?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

On Private Equity: Scott Schoen, THL

2009-04-04T04:22:00.000-07:00

Scott Schoen started off by describing a simple structure for the fundamentals of PE.

The THL Perspective of Doing the Deal
Sourcing (involves valuations and generating deal flow for inside due diligence)
-> Financing (due diligence is key)
-> Operations (improvements are key)
-> Strategic Exits (options include secondary PE markets)

Inside due diligence consists of identifying the
level of control required of the target,
leverage for the deal,
operational value add opportunities.

Financing constructs considered include PIPE structures where the private equity firm can acquire control with about 30-% to 35% of equity without paying for control. Financing sources can be broken down into existing investors, the government, and Mergers & Acquisitions. Each of these requires various strategies to be in play.

Manifestations of the Current Economic Context
Scott Schoen’s key points about the manifestations of the current economic context:

Sizing the problem: The economic contraction is a function of leverage. It impacts US Financial Sector assets totaling $60 trillion on the US balance sheet, and also impacts the leverage ratio (40:1) of financial institutions. As an example, he pointed out that the total CLO transactions in Q4 2008 were $0.

Return to basics: The contraction will lead to companies looking for cost savings; however, one company’s cost savings are another company’s lost revenue. In terms of the private equity industry, this translates to a return to the basics- better covenants and refinancing of senior loans.

Restructuring: There are two ways to deal with distress scenarios. Either negotiate amendments when faced with defaults, or go into a court process as lenders are fragmented, with banks as senior lenders.

Rates and The PE Deal: New rates at LIBOR +2.5% to 8.5% are causing value to seep through the PE deal.

The Equity Overhang: The private equity industry equity overhang of $400 billion will likely go into mid market private equity transactions

LP Asset Allocation: Limited Partners have capital allocation challenges to deal with- these can be deduced from the equity overhang. A $10 billion fund that is allocating 5% in private equity needs $1 billion in investments as money comes back at a certain pace.

It would be interesting to evaluate the strategies that GPs, LPs and lenders are considering to find returns across the process. Given the willingness to consider PIPE transactions, would PE firms begin behaving like hedge funds to manage the huge equity overhang?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Richard Friedman’s perspective on the Private Equity industry

2009-03-14T14:13:00.000-07:00

Richard Friedman’s address (Head of Merchant Banking at Goldman Sachs) turned out to be a whirlwind tour of what he’s seen of the private equity industry over the years, growing from a billion dollars in size in 1991 with 4 key firms to 545 billion dollars in size in 2008 with over 200 major funds. As usual, the barrage of information spawned many questions.

Some things he touched upon:
1> Anticyclical behavior of the industry
The 2001-2003 period had modest activity due to the economic conditions, however, the returns from the investments then varied from 25% to a 100%.
2> Trends in valuations
Alluding to the valuations being optimistic, almost driven by multiples of peak earnings instead of multiples of earnings.
3> Targeting large companies
Specifically points included financing, the 2001-2003 downturn’s lag effects, and compensation limits on management.

Evaluating (read critically questioning) these 3 trends is an interesting exercise, and got me thinking about corporate governance and leadership. More about it in my post on “Private Equity Firms and Large Company Acquisitions”.

The period from 1989 to 1999 saw investments totaling $250 billion, while the 18 month period from 2005 to July 2007 saw 1.2 Trillion dollars worth of investments.

Encouraging an idea out of left field, at the risk of sounding flippant, could you call this the biggest bailout (read takeover, or turnaround, or even protection) of American Enterprise in history? More about it in my blog on “Is Private Equity The American Industry that protects American Enterprise?”

Think About The Future
Equally interesting were thoughts about the future. Where do we go from here?

Bargain Hunting for Investments
Just like the 2001-2003 period, there are bargain purchase opportunities. However, any change of direction from the fund’s stated strategy would concern the LPs.

This leads to a set of follow up thoughts:
What more can GPs do to account for bankruptcy risk?
Does the answer lie in more robust valuation scenarios (akin to the bank stress tests) and due diligence?
Given the increased riskiness of investments, would PE funds start looking like VC funds?

How can GPs and CFOs of the funds work more closely with LPs?
What kind of downside protection can a GP provide an LP?

How do funds deal with liquidity challenges?
Does the senior loan market now resemble that in the 60s and the 70s?
If necessary, how would GPs buy senior debt in their portfolio companies and still ensure incentives are aligned correctly?

How would CFOs of funds categorize their LPs to get buy in on any style drift, assuming that’s a risk they are willing to take, and that there are funds available?
How would your approach be different when it comes to large institutional investors?

Managing Organizations
Given the economic environment, management teams may begin to think that they don’t have the incentives anymore for change. Persistent communication to align the investment perspective and the managers on the ground is a quick start- however; would it make sense to explore other initiatives like team building?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Trends in Credit Markets by Edward Altman

2009-03-14T14:01:00.000-07:00

Dr. Altman presented an interesting perspective on economic conditions in 2009- backed with the kind of data and research that gets you thinking critically at the economic data you see around you.

Some quick notes on topics touched upon:
1> The High Yield Bond OAS (yield to maturity spreads over treasuries), which were at 260 bps in June 2007, had jumped to 2046 bps in December 2008.
2> Spread index creation, based on weighted averages of spreads, and dropping of companies that go bankrupt, reduces the spreads.
3> Default rates could be a leading indicator of the health of corporate bond market, however, CDS does not define a distress exchange as a default event.
4> The size of the distress debt market, compared to that of the high yield debt market is an interesting economic trend.
5> Hedge funds will find it difficult to make money as the default rate rises.
6> Moody’s downgrade of 50% of CLOs in the $100 billion market is based on a 40% recovery rate on defaults.
7> In 2009, more than 12 companies went bankrupt with over 1 billion in liabilities.
8> Distressed exchange market in 2008 more in value than the the bond market since 1984 (IBM issuance of the convertible bond to finance an acquistion).

Points to note about the credit markets trends:
1> Low equity and debt volatility till summer 07. The VIX fell to 10.
2> Low default rates and high recoveries.
3> Distress debt control investing- loan to own.
4> Rescue financing- essentially a privatization of bankruptcy.
5> Volatility a measure of downside distribution of asset values.
6> Now, volatility high and liquidity low.

What patterns do you see?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Panel: Middle Market LBO and Changing Capital Structures

2009-03-14T10:20:00.000-07:00

The panelists were seeing transactions in the middle market, but these transactions had some sort of distress component. The insight here was about the ownership structure of mid market firms, which had entrepreneurs with strong stakes. Entrepreneurs running firms with strong fundamentals did not have much of an incentive to sell. Quoting a panelist- why sell when you can make as much money and still own the company?

Some numbers from the end of Q1:
The panel had seen loans being sold at a discount of upto 90%. LIBOR floor was at 3.5% and mezzanine coupons were at 15% to 17%. Debt multiples, in terms of EBITDA, for first lien were around 2.5, for second lien, around 3.3 and for subordinate debt, around 4.3. Mezzanine debt had more senior debt than ever.

Transaction multiples had held, however, leverage multiples had gone down, while equity component had gone up. The more complicated structures cause deals to take longer to pull off.

Banks were interested in private transactions, as they provided rates better than LIBOR + 500 bps, and were delivering via mezzanine and equity.

There was an interesting demonstration of over-equalization of seller and buyer expectations with supply of capital as a key factor. It would be interesting to see a similar analysis with supply of transactions as the key factor.

It was pointed out that transaction multiples had held:
1> Is ita real estate like effect in the relatively less liquid middle market where the selling price of the last house sold on the block sets the price for future sales? Or.
2> Are mid market firms with capital left to invest crowding around fewer transactions?
3> Banks investing in private transactions would be an important source of liquidity- how many of these investments were really follow up transactions to investments already made?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Panel: Venture Capital: Navigating the Current Landscape

2009-03-14T10:16:00.000-07:00

The panel started off, interestingly, examining the fundamentals of venture capital investing. Any potential investment must demonstrate compelling value and a feasible exit strategy. The panelists talked about how returns in venture capital are seen in bursts, and average out over time. One panelist talked about a batch mate in business school (early 1980s), now a leader of a successful universal banking group, who forecasted that the SnP500 returns would be greater than that of the venture capital industry that decade. The batch-mate turned out to be right.

The panelist also talked about some of their areas of investments- mobile computing, video games and personal genomics.

At lunch, Jim Long mentioned how important it is to bootstrap your venture.

Given the Sequoia presentation from 2008, it was interesting to see panelists responding to the crisis with a “return to fundamentals” theme.

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Panel: Fundraising and Capital Flows

2009-03-14T10:09:00.000-07:00

A diverse panel, consisting of
1> the head of treasury managing a large pension fund,
2> a managing director for alternative investments at a large fund,
3> a managing director for fund raising at a fund with investments as diverse as late stage VC to middle market companies, and,
4> a managing partner at a fund investing in industrials,
can definitely get you to “stress test” your thought processes on investment decision making in a downturn.

Some quick thoughts and questions that came up thanks to the panel:
1> How do GPs prioritize their investments, across investment decisions and portfolio companies?
2> Switching perspectives, how would LPs recategorize their top decile funds in the changed economic environment?
3> Have GPs and their LPs considered restructuring funds (changing terms, size, etc.)? At what point does restructuring a fund become in everyone’s best interests?
4> How are funds, whether buyers or sellers, over forced sales and bargain prices of investments, resetting their expectations, as well as the expectations of their stakeholders?
Note: Bargain prices of investments for buyers mean that to drawdown the fund fully, you may have to make more deals.
5> How do you deal with strategy creep when a fund is investing in earlier vintages? A fund of funds perspective may help, however, how do you build the processes to manage conflicts with style drifts?
6> Are we seeing many buyers in the secondary market for new fund turnover? How does that impact the secondary market discount?

One panelist, from a treasury department, talked about challenges in allocations to meet $800 million worth unfunded commitments with $300 million in payments to retirees. He boldly ventured that Modern Portfolio Theory may be dead. Given the volatility seen in the market, and pension obligations to manage, he stated that long only strategies do not work and pointed out the need to deploy derivatives strategies in the context. My take on this was that this perspective only underscores the complexities of managing risk with derivative instruments.

Another panelist talked about investing in long lived, low technology assets and managing macroeconomic and counter party risks. The fund raiser panelist talked about a 15 billion dollar 2008 fund, that was initially expected to invest about 4-5 billion a year, which was considering cross fund investments (say a fund WP10 looking at existing funds WP9 and WP8), with advisory board approval.

A panelist from a Germany based fund ventured that some of the winners in the downturn were global macro, and long short hedge funds. His take was that specialized funds were doing well. However, he was concerned about the liquidity of the hedge funds as drawdowns were being discouraged.

The panelist was also actively looking at the secondary market, besides private markets for capital. His assessment was that new fund turnover was at 3-5%. Some of the factors in the decision making:
1> Bottom up analysis on investments
2> Asset covenants
3> Secondary market discounts
4> Structured finance solutions to relieve or defer capital call responsibility and future unfunded obligations.

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

On Investing in Financial Services: J. Christopher Flowers, J. C. Flowers & Co.

2009-02-01T17:40:00.000-08:00

Some thoughts from a J. C. Flowers’ talk below, even though a little dated. He has been in the middle of events that have defined this decade, and could possibly impact this century.

Investment Strategy
J. C. Flowers has frequently executed a strategy of investing in financial services companies where the government is an important player. His theme was that government assisted deals seem to have no downside, even if there may be a capped upside, like the Shinsei Bank deal.

Investment Structure
He create a silo structure that can take 100% control of banks and that separates the acquired bank from the investing firm’s other investments. Flowers executed this by acquiring 9th smallest national bank. He has utilized this strategy to take 24% control in a German commercial real estate property lender.

Central Banks Around the World
His take on central banks- BOJ was moving slowly, Ireland may well go the way of the UK, and that the ECB has been hammered by national interest. These thoughts, seen in light of calls for a concerted global action by economists, as well as in light of efforts by Bank of Ireland to avoid directly bailing out the banks, caught your attention.

The Usual Suspects… Err… Questions.
Some questions arise:
1. How do both the investing strategy and structure account for the regulatory risk of investing in financial services companies? Could the market/ industry of the acquired player disappear? Say CDOs are regulated away? A more operational question is how do you deal with a government that is trying to force you out? That’s something that Flowers may be experiencing in Germany.
2. Given the governments may not want to continue their assistance of financial services for long, what kind of strategies would he need in place to exit with returns?
3. Regulatory capture is a separate line of thought- is that relevant here?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Private Equity Case: Dialogic Carve Out from Intel

2009-02-01T17:26:00.000-08:00

Given my own experience with a Citigroup company that underwent a carve-out and an acquisition, I was looking forward to insights from this panel of heavyweights.

The Investment Rationale, Diligence and Terms
The comprehensive discussion started off by covering the rationale for a carve-out. One could be the impact of the technology inflexion curve, which forces revenue contraction. The challenges lie in the due diligence- the new entity requires an operating infrastructure to be built around the business- and venture capital like agreements on the term sheet conditions around downside protection- like redemption rights. Factors like restructuring management also need to be considered as they impact investment risk. In the Intel- Dialogic deal, intellectual property discussions were also critical.

Exit Strategy
Given this context, the exit strategy pitch to the investment committee is also critical. The right expectations need to be set, from whom to sell to- IPO vs. general sale- to sale value. This is especially important when the investor would like flexibility on freeing up cash if necessary.

This raises interesting investing questions:
1> Investment Failure Rates
There are various ways to slice and dice the investment portfolio: have firms considered “failure” rates of different types of deals, e.g. a carve out vs. a public company acquisition, as a factor in their decision making?

2> Portfolio Synergies
Do investment committees consider synergies across their investment portfolio as a factor in deal making? If so, what kind of policy should govern such a process? Note: Dealmakers sometime tend to think of synergy as finding efficiencies by acquiring competitors and consolidating market share. There is more to synergies- it pays to think like an investment professional here.

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

On Private Equity: G.M.C. Fisher, KKR & Company

2009-02-01T17:19:00.000-08:00

G.M.C. Fisher talked about his experience within the Private Equity industry at KKR & Co. His opening theme was that Cash Is King- the cornerstone of the Private Equity industry. It also dovetails with my own experience of dealing with and highlighting strategic risks with a supplier with cash issues that filed for chapter 11 bankruptcy.

KKR & Co.’s Integrated Model
He then focused on the firm’s integrated model of value creation. As a senior advisor, he believes advisors had a great deal of flexibility at KKR. The portfolio committee focuses on operational improvements and the investment committee focused on deal making. There is also an independent audit committee in place. The Capstone team at KKR performs the strategy function.

The key component of the operations strategy is the 100 day plan. Quarterly reviews serve as reality checks against overcommittment by an eager management team. Business transformation is quicker and easier in this context. Similar to conglomerates, the role of a Chief Talent or HR office is critical in a private equity company.

Fisher talked about the PanAmSat deal where Carlyle and KKR formed a consortium. In a portfolio company, the focus is on the assets of the company, and planning debt maturities (requires modeling at the tranche level).

The Questions
This leads to some questions about the investing process:
1. What would be the criteria for dropping a deal after the screening process indicates that the target would make an effective standalone investment? What would make KKR walk away from an opportunity where the numbers from the screening and the models indicate a strong investment opportunity?
2. Do PE companies increase employment?

The talk made me wonder how my company’s supplier, who I believed needed to be dropped from the supplier list, would flow through this organization structure as an investment. Are there companies out there you believe will gain from a private equity acquisition?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Panel: Venture Capital: “If it ain’t broke…” Does the VC Model Need Fixing?

2009-02-01T17:15:00.000-08:00

The discussion focused on the parameters within which the VC industry currently operates

A return to fundamentals
The discussion kicked off with a return to fundamentals:
1> Most venture capital firms are not setup to make small investments
2> Venture capital firms are more like asset managers
3> Deal making is not easy: A deal like that of EqualLogic was hard work for all parties involved
4> The venture capital business is fundamentally not about fundamental research for revolutionary technologies, but about applying technology
5> Depending on the industry, the average holding period can be up to 9 years
6> As the market for the pre-IPO company matures, it should grow larger, providing the opportunity for late stage venture capital firms.
7> Exit strategies are critical to the model. Is there a vibrant IPO market? Are there private company sales opportunities?

Investing during the economic downturn
The panelist opinion was that the quality of business plans and management teams gets better as the economy goes down. The panelists emphasized that they are being extremely selective; they are not into throwing 50 bets at the solar power industry.

A panelist pointed out that the CEOs of their portfolio firms were upset by the Sequoia deck. The economic downturn, though, has led them to revisit their breakeven analysis.

Economic cycles and the industry- a perspective
A panelist had an interesting perspective on the economic downturn- the VC firm sells a company to Microsoft in the good times -> Microsoft cuts products and jobs in the bad times -> the resources are back in the VC fold working on the next product.

Venture Capital Fund Management
Funds are structured as financial managers who can find good business managers, as opposed to operational managers making funding decisions.

In January 2009, Kleiner Perkins, raised a so-called “annex fund,” or reserve fund it can tap to support companies it has already backed to help ensure they get through the downturn.
http://venturebeat.com/2009/01/14/kleiner-perkins-forced-to-reach-out-to-new-investors-unheard-of/

Outside of the one off hits, a panelist pointed out that returns in the 4x range would be rare in exits. Valuations were down 50%, B and C round valuations were down 20% and 30 % respectively. Another panelist stated that the venture capital industry was saved from a sever flight of capital by the buyout collapse.

Some the questions that arise:
1. Do lower valuations imply a longer time to complete transactions, and require a better understanding of the potential investment’s core business?
2. Would there be a shakeout in the industry that favors more late stage firms that have strong networks with large, potentially private companies? Would the shakeout lead to a reduction of the number of multistage firms?
3. Would late stage venture capital firms resort to private investment in public equity (small cap companies)? Even at the risk of serious strategy drift?
4. Given the odds of hitting the ball out of the ballpark (and I am not even talking about the odds of innovation), how should a venture capital firm get more selective?
5. Given the context of the Kleiner Perkins Annex fund, would a fund consider trading extensively in a secondary private market only when it is considering liquidating? Would partial portfolio/ strip sales be a serious option? Would some sort of a CDO like market structure be useful in the venture capital industry?
6. How are funds helping the LPs? Is it just via managing the drawdowns?
7. Are more LPs checking on estimates on deal flow and deal sizes to assess the impact of the economic downturn?
8. Are investment charters of old portfolios being modified to provide more flexibility to the venture capital firms?
9. How frequently are LPs assessing their asset allocations strategies and communicating with funds to execute revisions?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Consumer Behavior and Robert Pittman on Investing in Media

2009-02-01T17:05:00.000-08:00

Consumer Behavior
Robert Pittman had some interesting insights on consumer behavior. He provided an “action oriented” view of Maslow’s hierarchy by citing convenience and branding as key components of a consumer’s decisionmaking.

He defined convenience as physical, tangible productivity tools and branding as a means to prevent switching. Applying that to internet tools/ properties/ networks, the key trade off is effectively the relative “delta” of convenience vs. switching costs.

Advertising channels and consumer behavior
Robert pointed out that the internet is not killing TV, its really killing newspapers. Some thoughts put forth around this idea:
1> Pricing: He compared the cost per thousand impressions between TV/ radio and newspapers. He then questioned the rationale for the market difference.
2> Change in spend across channels: He presented data that highlighted the marketing spend across newspapers, yellow pages and the internet, with newspapers currently garnering more than twice the ad spend on either the internet or the yellow pages. Change in marketing tactics to adjust to the internet as a medium has not been drastic. Given the theme, this presents a tangible opportunity in the internet media segment.
3> Nature of advertising channels: The cable TV industry is larger than the broadcast TV industry; however, the cable TV industry is quite fragmented. This creates a difference in how advertisers approach these two channels.

Some takeaways
1> Critically analyze the value of internet properties
Is the internet properties’ lack of stick just a function of low switching costs?
Do internet properties really make us more productive or more effective as they interweave into our daily life?

2> Expect unrelenting, inexorable change
Citing the fact that TV show ratings lead their revenue impact, Robert sees a similar trend in the internet media. The internet is truly impacting consumers and consumer facing companies. Adapting to this change in consumer behavior will define which companies fail and which survive.

The talk led to questions, as usual:
1> The web and TV: How do we categorize the impact of online TV series viewers on series like The Sarah Connor Chronicles and Dollhouse? The former got the axe despite as many as 7 million viewers following the series online.
2> Channel relationships and Ad spend: Are the industry structures in place for the media planning industry to move quickly, seamlessly and effortlessly across the various advertising channels? Is it just a function of channel relationships, or it is also a function of the industry still being in the process of wrapping their arms around opportunities in the “new media” segment?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Financial Transactions, Trust and Keynesian "Animal Spirits"

2009-01-29T18:17:00.000-08:00

I read an interesting article by Shiller on how to facilitate credit markets' recovery:
http://online.wsj.com/article/SB123302080925418107.html#printMode

In a nutshell, the theme: increase government support for the credit markets and also increase the size of the stimulus.

While Stiglitz's article on the Bretton Woods moment may make you consider whether time is circular, Shiller's article suggests trust is an absolute for any economic system to continue humming as usual, and then suggests targeting that same absolute for rebuilding a specific, battered, economic system.

In my previous blog below,
http://randomjunkyramblings.blogspot.com/2009/01/stiglitz-wrote-interesting-article-in.html

I referenced an Op Ed on a terrorist attack that wrapped up with "Stimulus doesn't have to be just economic". The theme in this Op Ed article was that it takes more than just funds to restore the spirit of an economic engine.

Looking from this lens, could Schiller's suggestion of expanded government stimuli be a case of prescribing Aspirin for headaches and heart attacks? Is Apirin really a miracle cure? If not, what are the alternatives? Is there no alternative?

Could expanded government stimuli really be a "necessary" condition for other factors to initiate an economic recovery?

What do you think?

Financial Markets, Economic Crises And Global Co-ordination

2009-01-24T08:53:00.001-08:00

Stiglitz wrote an interesting article in Newsweek, titled "Markets Can't Rule Themselves"***: http://www.newsweek.com/id/177447

The crux of the article is Stiglitz calling the current crisis a Bretton Woods moment. The article is a great read as it makes you pause and look carefully at the options the current administration has to solve the economic crisis. It gets you thinking about "boundary values" of the options being evaluated in the current economic scenario- a process that leads to more felicity in thinking about solutions. It certainly got me thinking- hence this post.

The Story So Far

So what has been done already toward managing risk in increasingly globalized markets? Some of you may be familiar with Basel II. Basel II (http://www.bis.org/publ/bcbs107.htm) could be called a move toward a more effective risk management approach, consistent across countries.

Where Do Stiglitz's Ideas in the Article Lead Us?

I have two impromptu thoughts on the overall direction of the ideas in the Newsweek article. Note: I am very unhappy to say I am still wrapping my head around these thoughts (read research- data and analysis).

1> Global Co-ordination Becomes One Roof to Shelter All in Implementation?

Perhaps it’s the effect of looking at Van Gogh's Starry Night, but upon reading the idea of managing monetary policy globally , I see visions of an entity called "The United Nations Central, Commercial and Retail Bank of Planet Earth". At the risk of sounding dismissive about the interesting "brainstorming ideas" in Stiglitz’s article, we know the UN has not been consistently effective in each crisis it has encountered.

Thinking through implementing an empowered global financial entity, does a parallel between Stiglitz's idea of a global financial regulatory body, and the structures that global corporations employ when dealing with a diverse portfolio of markets, which includes multiple hypercompetitive markets along with markets that resemble sleepy hamlets, make sense?

Global co-ordination has become increasingly critical for an effective response to global financial crises. However, would a light weight process or protocol that gets central banks in the same room and talking, with control and decision making remaining with central banks as they exist today, be more effective than setting up a "heavyweight" international organization?

Given our experience with the effectiveness of the SEC as a regulatory body, what can an international institution monitoring global financial crises really bring to the table?

For those who track international finance closely, how does such an international governing body impact Mundell's framework? Or should I rephrase to say how Mundell's framework would wreak havoc with any initiative of such an international governing body?

2> To Restrain Or Not to Restrain Innovation, that is the Question?

I get a feeling that Stiglitz is checking if we can put the innovation "genie back in the bottle". Unchecked innovation could be termed the root cause of the current problem and we may need to rein it in. It’s a good thought. However, the laundry list of options considered sounds like we are throwing the baby out with the bathwater.

Are we in danger of over regulating to an extent that it effectively regresses the industry? In some ways, it’s a bit like moving from the Iron Age back into the Stone Age (blame this analogy on reading a bit about Ancient Indian history connected with the Iron Age). Control on the industry is necessary via an improved regulatory framework, but how much, over what, and why?

You might argue that innovation is hardly going to be defeated by knee jerk, reactive over regulation. However, my hypothesis is that a singularity like the current economic crisis is the proverbial butterfly that causes a hurricane half way across the globe.

For those that argue that government regulation can serve as a guiding hand to financial services innovation, does a parallel between the idea of the government playing an active role in guiding financial services innovation, and the research on the impact of MITI in Japan on the Japanese High Tech industry, make sense?

3> A Global Economic Emergency?

If we were to effect some of Stiglitz's ideas- what would governments across the world need to do? Perhaps the ideas in the article need a "global economic emergency" (yes, as I write this, I am thinking- it is one of those Saturdays when the imagination runs wild) to be implementable? Any such effort entails significant, co-ordinated political will across countries and economic regions.

Is it feasible/ possible to pull off the measures like those listed in the article, for a short period of time to solve an immediate problem, and then revert to the "good old ways" with a little less laissez faire?

In Summary: Back to the Future? Guns, Germs and Steel? Alice in Wonderland? A Hundred Years of Solitude?

Playing the devil's advocate again- none my counterpoints account for the unprecedented situation we see here. I am looking at Stiglitz’s ideas, listed in the article, in the context of steady state economic policy and my counterpoints are in the same context.
Now, is the current situation really unprecendented? Are the parameters that tell us so, useful in generating an unprecedented solution?

Are we really looking to rewind time, back to a warm fuzzy place when we were still trying to figure out what the financial system could do for the economy? Is this question already too late? Could Shiva, the destroyer of worlds, the genie from the bottle, already have wiped the slate clean for us to start afresh? To gaze afresh, a bit like Alice, at the fluttering butterfly and imagine ways we could channel its untapped power and find new unintended consequences?

Show Me The Money- Is it all about The Money?

I also got thinking about an article on the Mumbai terror attacks (http://www.nytimes.com/2008/11/29/opinion/29mehta.html), where the writer signs off by saying "Stimulus doesn’t have to be just economic."

What do you think?

Thanks!

*** Posted by Prof. Rosensweig at an alumni macroeconomics message board.

P. S. Key Points of the Stiglitz Article

All ideas in Stiglitz's article, which focus on creating:
- Better monetary policy coordination across the US and Europe
- An internationally coordinated stimulus program
- Global financial regulatory body to help monitor and gauge systemic risk
- Global financial rules on managerial incentives
- A new global reserve currency
- A new system of handling cross-border bankruptcies,

arise out of this fundamental approach. This looks a lot like expanding the "The Gold standard" approach to include bailouts and bankruptcies.

Movies and word-of-mouth: Slumdog Millionaire

2008-11-25T19:55:00.000-08:00

Slumdog Millionaire's performance at the box office is worth tracking. Why? I would recommend sampling the product first. You are welcome to tell me what you think- after you see it. ;-)

My first hypothesis is that word-of-mouth would have a huge impact on the movie's box office returns.

Keeping absolute returns aside, my second hypothesis is that this movie would have a fatter tail vis-a-vis initial returns compared to a movie I have mentioned here:
http://randomjunkyramblings.blogspot.com/2008/05/movies-and-brands-iron-man.html

Which products/ brands would have gained the most from an association with Slumdog Millionaire?

What do you think?

Interesting Times and Investing in Large Cap Companies- Part 1

2008-11-22T10:48:00.000-08:00

Is equity investing in large cap companies during uncertain times similar to venture capital investing if the 3 conditions below are true?
1> Your offer of capital makes you a large shareholder in the company.
E.g. Warren Buffet's investment in Goldman Sachs, with the terms he could bargain for.

2> The capital markets enter a period of volatility that begins to approach uncertainty that venture capital investors face in their investment decisions.
E.g. The VIX crossing 85 in October'08, in the context of applying the Black Scholes model to investing decisions.

3> The capital markets face a liquidity crisis/ credit crunch.

Talking points:
1> Are these three conditions enough?
2> Does the "maturity" of the company mean anything beyond the ability to effect change within the organization, and the time required to effect this change?
3> Is looking at this question purely from the financial investing term sheet perspective inherently flawed?

Now that you have been anchored to the 3 follow up questions above, here are a couple more:
1. Is there a category of distressed company investing that is similar to venture capital investing?
2. Irrespective of how you categorize your investments or investing style, would you consider ending up looking at term sheets as an indicator of the end-of-the-road for that particular investment?

What do you think?

Managing a crisis.

2008-10-21T21:05:00.000-07:00

A couple of thoughts:

1> Parallel between managing a financial crisis and plain old project management.
As a crisis prevention (management?) measure, would a decision maker pump in money into "the system" to minimize the impact of a crisis as against spending as much money after the crisis has totally hammered the economy?

The context is the current administration's steps in dealing with the crisis as against the government initiating huge construction projects to keep the economy floating through the Depression period.

2> Credit and liquidity characterized as life saving therapy that could kill?
What do you think?

Financial Crisis: Economists comment

2008-09-25T18:05:00.000-07:00

If, like me, you would like to hear what seasoned economists think about the current financial crisis, below is an interesting site called The Economists' Voice:
http://www.bepress.com/ev/

Its a subscription site- however, the individual subscription fee does not cost an arm and a leg.

It was shortlisted for the best new journal here:
http://www.alpsp.org/ngen_public/default.asp?ID=251#new

Many thanks to Lori Sullivan for sharing the site.

The Anatomy of a Financial Crisis/ Good Times, Bad Times

2008-09-24T20:00:00.000-07:00

Notes:
The first 5 points of the notes are at end of the novella below.
6> Characters below bear no resemblance... oh, go on and read it for yourself.

The Anatomy of a Financial Crisis, Or,
Good Times, Bad Times (With Apologies to Led Zep)

Minnie, Manny and Moe are bankers in GeeWizLand. They like to lend folks money so that folks can take fun vacations and create a global economy. The 3Ms have been doing this for ages, and they like to lend money to a certain set of people, like Paris Heelton and Britney Spurs, with the odd movie star like Ms. Jolee thrown in.

Funky Fred comes along and tells the 3 Ms that he will be happy to guarantee these vacation loans for a small fee. Given the uncertainty over Paris' Jail time and Britney's asylum ambitions, this sounds like a good idea to the 3 Ms. Funky Fred also decides the he could lend to the 3 Ms. Moe is totally on board with Funky Fred on this. Ms. Winepub showed up at Moe's very ornate door seeking money for a rehab vacation, and Funky Fred's loan would help Moe lend a helping hand to Ms. Winepub.

Times are good. The 3 Ms meet at the 3Ms Factory every Friday night to gorge on Cheesecake and are happy to invite Funky Fred to the party. On one of these evenings, Funky Fred comes up with another innovative, brilliant idea. He will not only allow ordinary folks to become shareholders in his company Fred Smarts, but he will also borrow. There are only 3 bankers in GeeWizLand. The 3 Ms. Funky Fred points out that the smart and funky thing about this borrowing is that he will pick and choose loans, label them 3 As and let Minnie, Manny and Moe choose to lend against the 3 As.

Minnie, Manny and Moe look at each other, and like the idea. After all, Funky Fred is the smart guy running Fred Smarts. He is guaranteeing their loans. He is also a lender and has some insight into the loans business. Minne is thinking she will get to lend against the 3 As in Moe's bag- she had been eyeing superstar Winepub's rehab vacation deal that Moe pulled off. So, they begin to hammer out the idea over more Cheesecake. Funky Fred totally connects with Minnie when he mentions that he thought Ms. Winepub was such a good bet, he lent her money for her second rehab vacation. With the cha-ching at the opening of Pink Floyd's Money ringing in their ears, Funky Fred and Moe exchange high fives. Manny being Manny, throws a plate of cheesecake up in the air, high fives a cute hanger on, and then tosses it over to Funky Fred. Finally, to close the deal, Funky Fred announces, "Folks, I think this is the beginning of a beautiful friendship".

Sweet!

Of course, the 3Ms are not supposed to be thinking about Funky Fred's uncle. Sam. Sam is the Warren Buffet of GeeWizLand. Fred has always been careful to tell them that Sam's a great guy and everything, but Sam and he have no business dealings, and that Sam minds his own business. Anyhow, the 3 Ms think it can't hurt to have Sam for an Uncle.

So, times are good. With all the fees Minnie, Manny Moe and Fred are making, the innovative Friday night cheesecake parties at the 3 Ms Factory are the toast of GeeWizLand.

Along comes Boogie Howser, NPH. Brilliant guy. He wants to take a year long sabbatical- go sailing around the world. His plan is to consult wherever he carries himself and use the money to pay the interest on the loan while he is away. Moe likes Boogie. Boogie's past record as GeeWizLand's superdoc is unbeatable. Moe thinks this loan is do-able and happily loans Boogie the money. Moe thinks Boogie is not just Type A, he is Type 3A and labels him as such (AAA). Plus, times are good, aren't they?

Now, Boogie breaks a leg at a stopover in Timbucktu. He can only treat folks who cannot really pay much. He misses a payment, and then some. Ms. Winepub treats her rehab vacation like a vacation, her concerts bomb, and her second album completely bombs. Ms. Winepub is a gem of a person. She will repay her loan. Fred and the 3 Ms think she will too. She's a rockstar and a gem of a person. Really. However, for now she missed a payment and then some.

Moe realizes he is in trouble. Even if its only for now. First there was Boogie, a customer he had not dealt with previously, and now Ms. Winepub was tottering as well. All superstars, each one a gem of a person. Moe suddenly has no money to lend because he is not getting any money in. In fact, Moe may not be able to make his payments on the money he has borrowed.

Funky Fred and Moe have a quiet chat at their Cheesecake Party and Funky Fred realizes he is in trouble, along with Moe. First there was Ms. Winepub. Now, he has to stand by his guaranty for Moe.

Funky Fred has no money. Not to lend. Not even to make payments to Minne and Manny who were counting on his funky 3 As. Minne and Manny haven't heard about Ms. Winepub's financial mess. They couldn't. To them, she had become one of the funky Type 3As- Not Just a Number, But a TLA (Trademark, Funky Fred). In any case, Minnie and Manny soon realize they are in trouble as well. Funky Fred can't pay them. Now, Minne and Manny can't lend. Maybe they wouldn't be able to make payments in the future either.

The 3 Ms realize that old methods like throwing cheesecake at each other to sort matters out would not work. True to their reputation, the 3 Ms will have to innovate yet again. Minnie, Manny and Moe now step out of their party and head over to Fred's Uncle's- Sam's- place.

Sleepy Sam is awakened by a 3 AM knock at his door and finds Minnie, Manny and Moe looking at him. Sam, a little drowsy, begins to think about why he should bother with the 3Ms. Really. Minnie, Manny and Moe dug their own grave. Then there was Funky Fred, who was always too smart for his own good. Who goes about calling himself Funky Fred? He is not sure if its the sleeping pills reacting with his face cream, but his mind plays a phantasmagoric reel of Young Sam punishing little Funky Fred for making too much money at his lemonade stand by spanking him and getting him to drop Funky from his name for the next school year. The reel ends abruptly with Funky Fred negotiating with the immortal line, "Funky by any other name... is still Funky".

What should Fred's uncle do? A simple "Get lost!" to the 3Ms should do the trick and he can deal with Fred (down with Funky! Now!) in the morning. However, it's not that simple, is it? There's a faint thought in his mind, barely registering thanks to the throbbing headache caused by The Friday Night Party People showing up at his doorstep in the middle of the night. Perhaps his businesses, and wealth are tied to the 3Ms fortunes.

Sam is huge. HUUGE. He has borrowings from the 3Ms. He also has borrowings from distant shores. The distant shores like GeeWizLand. Its a nice town of superstars that always have money. Now, thanks to the Winepubs and the Howsers, the 3Ms don't have money. And the superstars don't have any money to spend because 3Ms aren't giving them any.

Oh and btw, somehow, folks outside GeeWizLand aren't buying Superstars anymore. The Superstars will find a way, but for now, they really have no money.

Sam's businesses, even stable businesses like EyeRuS (How much emptier can you pocket be today? Trademark EyeRuS), are now hurting because Superstars have no money.

Distant Shores has a little camera behind a Curtain in Sam's House. They are watching Sam. What will Sam do? Can Distant Shores continue lending to Sam the same way they used to? Perhaps Distant Shores have no options either, just like Sam.

What does all of this mean? This looks like one big snake biting off its own tail! This may also look like something that GeeWizLand and Distant Shores may have to weather together. For how long? A year? A decade? A generation?

GeeWizLand knows nothing about Distant Shores. Those who do know about Distant Shores tend to go break a leg in Timbucktu. Distant Shores think they know GeeWizLand and its Superstars, but that's an illusion as well. However, everyone has a sinking feeling that even if it is for a little bit- with faith in Superstars and everything- everyone is in it together.

What do you think?

Notes, the strange loop version:
1> This writing (Novella, as some readers have called it) is a slightly modified version of an extempore email sent out on July 12 to a MENSA message board to explain, in layman's terms, what was going on in the financial sector at that point of time.

2> This is an incredibly painful time for the financial services industry, the US economy and global economies. This article is just an abstraction. Its a starting point for readers to explore market structure and think analytically about decision making. If this encourages you to build complex models that tie in macroeconomics, consumer behavior and game theory, please drop me a line. We should talk.

3> A lot has happened since July 12. If you have read the story before-I will reemphasize that its not over yet. The article is structured so that you challenge every paragraph and analytically dig into the details. Your comments are welcome and critical.

4> Many thanks to Prof. Rosensweig for teaching.

5> I remember telling someone in a different context (the energy crisis) that if I could fix the problem tomorrow, I would do it. I really, really, really would like to. I can't. I can, however, do my best to learn. "We shall overcome!"

The Return of The Da Vinci Puzzle

2008-05-21T22:23:00.000-07:00

Oh well, I was not inclined to publish the solution. However, as Spielberg said to Harrison Ford, or as Sly Stallone thought to himself, never say never.

The Original Da Vinci Puzzle is here:
http://randomjunkyramblings.blogspot.com/2008/03/da-vinci-puzzle-with-apologies-to.html
Sure beats calling it The Vulcan Mind Meld, doesn't it? Beats Einstein's Puzzle hands down? I suspect you will find clues in the puzzle once you see the solution.

Anyhow, I got some awesome, and some crazy, solutions. Below are two approaches I thought of. In the first one, we take liberties with the puzzle/ twist the puzzle rules a bit. In the second one, we incorporate optimization ideas to fit the rules of the game.

Approach 1:
1> Cut the sets of balls, so that each set of balls has a prime number numerator in a ratio that makes up its weight.

2> Identify the duplicate set of balls on weighing the balls once by using properties of prime numbers.

Approach 2:
1> There is no unique solution.

2> Avoid using the scale. Solve this on paper or write a program.

3> You would like to minimize the error in the solution. The error here is the possibilities of jars holding the duplicate set of balls. E.g. You could come up with a solution where you weigh set 1,2,3,4,5 and the weight indicates that the duplicate set could be 1,2 or 5,6. You could also come up with a set 3,4,5,6,7 where the duplicate set could be 3,4 or 5,6 or 8,9. You minimize error with the first solution, i.e. the first solution would be *more* correct.

4> As pointed out by a Mensan, you have to try out all the possibilities before you can identify the optimal solution set. Yep, welcome to the weary world of The Traveling Salesman. This is literally a "hard" problem.
Pick any solution string from the optimal set as your solution. At this point, if you haven't lost your cool already, you are welcome to also weigh this solution string on the scale. Once.

5> The same bright Mensan suggested a book for this kind of funky thinking:
Numerical Recipes in C: The Art of Scientific Computing
http://www.amazon.com/Numerical-Recipes-C-Scientific-Computing/dp/0521431085/ref=sr_1_4?ie=UTF8&s=books&qid=1211417740&sr=1-4
I don't have my copy of this book anymore. Its been a while since I was in engineering, however, I might borrow it if you have a copy.

6> Don't shoot me, I'm just the messenger for the crazy ideas running about in my attic. :-D

So, what do you think?

Good Product Management and Delegation?

2008-05-06T18:16:00.000-07:00

What does it mean to delegate as a Good Product Manager?
I found myself at a site on "Good Product Management" that recommended delegation as an important tool. This led to some discussion on what it means for a product manager to delegate responsibilities. Some bloggers were of the opinion that delegation is irrelevant to a product manager- he should be focused on helping others get their job done within an integrated product management framework.

I don't think the two viewpoints are different. They are really only approaching the same idea from different perspectives. Let me explain.

The Dynamic View: Fire, Fire Everywhere!
Having been involved in a massive product turnaround, I can attest to the fact that you will find ample opportunity to get sucked into fires (a reference to "The Goal"). These fires are not just specific high visibility issues, but also cases involving process variance/ risk factors where you have leaders defined and contingency plans in place. This is a dynamic view in product management reality.

Should you step into each case? What's the best way to do so? Or should you let the defined leader find a way? Should you step back and spend your time drafting "Integrated Product Management" processes for each exception?

The Static View: We Have a Magic Bullet!
At the other end of the product management spectrum, you risk complacency (we are only getting started here) when you think you have the right "chess pieces" with the right processes in place, when you are in a dynamic business environment that will unflinchingly sneak problems past your Product Management framework. This is the static view in product management reality.

A product manager may thrive with a static perspective of his role thanks to serendipity.

Dynamic Solutions to Dynamic Environments
While being a facilitator is important, a product manager is likely to find himself working toward building levers and an ecosystem that improves outcomes.

This is essentially change management. Similar to the decision making of a good general manager, who realizes the limitations of the environment he operates in, a good product manager will wisely exercise judgement in taking up tasks- even choosing tactical tasks- toward change.

What do you think?

Movies and Brands: Iron Man.

2008-05-04T15:46:00.000-07:00

Iron Man made $100 Million over a weekend. i.e. about 3% of the US population has seen the movie across 2000 theaters.

While movie marketing/ branding/ merchandising is an interesting topic in itself, how many brands do you recall jumping onto the cobranding bandwagon?

Alternative Energy Investments: The BioFuels Story Continues.

2008-05-04T15:39:00.000-07:00

There has been a lot of negative publicity on biofuels lately, given the context of high food prices. Here's an interesting story about second generation biofuels (energy from agriwaste) that would strengthen the hands of folks who would like a more realistic perspective on biofuels research:
http://sify.com/finance/debt/fullstory.php?id=14653698

The ruckus on Biofuels, from the Food vs. Fuel perspective, has been causing governments and institutions to rethink biofuels support:
1> http://uk.reuters.com/article/oilRpt/idUKN2232394520080422
2> http://thescotsman.scotsman.com/latestnews/-Brown-sounds-retreat-on.4009080.jp

My take on alternative fuels last year is here:
http://randomjunkyramblings.blogspot.com/2007/12/investments-in-alternative-energy.html

What do you think?

Turnarounds and Distressed Company Decision Making

2008-05-04T13:32:00.001-07:00

I remember thinking about incentives during a restructuring course I took a couple of years ago:Consider a pre IPO company whose value has been falling, and it's liquidation value is now close to its debt value (we have all heard of a startup that burnt through its cash). The management has an option to make an investment that is 3x as risky as any they have considered so far.

Should the management optimize:
1. shareholder value?
2. company value?
3. creditor value?

At an interesting case study session recently- amidst turnaround professionals- an insight was that the legal "line in the sand" varies from state to state, besides varying from country to country.

What do you think?

Conference Panel: Healthcare in India

2008-04-29T05:54:00.000-07:00

Before stepping into the panel, I had a pretty linear approach to the Indian healthcare business:
1> Regulatory frameworks -> IP, constraints.
2> Industry-> market structures, services, and maturity of symbiotic players.
3> Consumers and Markets-> segmentation.
4> Companies-> Revenues-> Products and Services; Costs -> Manufacturing, Distribution, Licensing.
5> Distribution models.

Listening to the panelists from Pfizer, a healthcare company (Apollo Hospitals), a generic drugs company (Dr. Reddys) and Carlyle, I began to focus on 2 takeaways:
1> Healthcare Framework and Policy Innovation: The parallel here is the effort in the Indian Financial Services sector to develop frameworks given the results in the US financials "market". Another parallel is the U.S. music and film industry.
2> Business Model Innovation: Focused on access to healthcare services and drugs. Access equates not just to distribution, but also to price points. The parallel here is the U.S. (global?) music industry.

Healthcare Policy Framework Innovation
1> The "Access" Case for Policy Frameworks:
Amit Patel from Dr. Reddy's made an interesting point that bringing down price points in drugs, patented or otherwise, may bring about increases in revenues, due to increases in volumes of users. He carefully avoided talking about elasticity, but he was effectively driving at segmentation and managing the segments.

How is this thought process relevant in the Indian Healthcare context? Unlike in the U.S.- given the context of healthcare insurance in the US- the price of a drug effectively forms an access barrier to those who need it. Healthcare in India invariably involves a large out of pocket expense component.

These access issues roll up into a need for policy frameworks that develop multiple markets and multiple market entities that collaborate to serve unmet demand.

2> The IP Case for Healthcare Frameworks:
Again, the panelist from Dr.Reddy's pointed out that a patent regime is an outcome of a particular economic environment and necessity. The U.S. music industry is coming to grips with markets evolution driven by technology. Do the U.S. music and film industries need to rethink how they look at IP and its enforcement? Would they have to take another look in the future?

3> Policy Roadmaps:
How about applying an idea, similar to product roadmaps for agile development, that I suggested here:
http://randomjunkyramblings.blogspot.com/2008/03/conference-panel-infrastructure-in.html

Business Model Innovation
On distribution, the value chain, and operations, I find parallels between the music industry and the healthcare industry. Supply needs to innovate to stoke Demand.

More about this as I add to this blog.

Music Industry, Technology, IP and Piracy: Is there anything in common? Really?

2008-04-06T11:58:00.001-07:00

Multiplicity of Approaches.

News articles on the music industry below, indicate a mutiplicity of approaches (could it be serendipity?) being followed by firms to deal with flagging "old media" revenues:
1> http://www.nytimes.com/2008/04/04/technology/04myspace.html?_r=1&ei=5087&em=&en=7e63eb66cebb344e&ex=1207454400&pagewanted=print&oref=slogin
2> http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/06/cncarphone106.xml&CMP=ILC-mostviewedbox
3> http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/06/ccemi106.xml

The article, and my own experience in Technology Intellectual Property (IP), got me thinking again about the music industry's woes.

My contention is that any firm considering developing IP in emerging markets must think of the markets as hypercompetitive, where they compete with their own shadows. This might dovetail with the experience of some Venture Capital firms in Asia and Africa.

Allocate resources toward making money.

As some one who has created IP, in technology, in an emerging market, my generic stand (and I know this is likely to spark controversy) in that context is that protecting IP is subservient to growth- marketshare, ramping up revenues quickly, etc. Marketing muscle- either the company's own distribution strength, or the company's ability to create a network of stakeholders in its success- is critical towards finding a defensible niche where the company can build customer relationships/ stick. Allocate resources toward making money, instead of fighting a losing battle.

So What? How does this apply?

While the developed economy context is not the same, the first two articles seem to be a sign of parts of the value chain seeking to control the supply chain.
The third article seems to indicate a deepening of a pragmatic approach in the industry. An approach that focuses on developing models for making money off an economic reality, as opposed to fighting an (apparently) losing battle. For project management, I tend to advocate a multiplicity of approaches toward a more robust critical path. However, there are times when a multiplicity of approaches only serves to muddy waters.

Over the past few years, I have faced some flak for flatly advocating the pragmatic approach. What do you think?

Conference Panel: Asset Allocation and Changing Times, the Limited Partner Perspective

2008-04-06T10:40:00.000-07:00

I decided to check with a Limited Partner (LP) on the questions on deal size and frequency that I had thought about at this conference:
http://randomjunkyramblings.blogspot.com/2008/03/conference-panel-investing-in-india.html

Of course, the context was different, but my take was that the issues encountered were the same. The LP smiled and said they had a great CFO. Going back to the Gary Loveman post below, you can't argue with talent:
http://randomjunkyramblings.blogspot.com/2008/04/conference-panel-portfolio-value.html

A General Partner (GP) at another panel said that an LP had mentioned that a lesser return in the depressed economic environment would still validate their investment/ asset allocation. It would be interesting to get insights into the aggregated decisions made by GPs across PE firms and the outcomes down the line.

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Conference Panel: Portfolio Value Creation by Improving Business

2008-04-06T10:27:00.000-07:00

Gary Loveman, Harrah's Entertainment, was asked about how he would act if slowing economic conditions impact business despite his assertion that economic conditions would not really impact his business.

He said he had the leeway to adjust his planned capital spending (approx. $4BN) to meet debt commitments.

It was interesting to note that he would rather kill/ delay Capex than sell assets to meet commitments.

I did a quick mental check of this insight against his assessment that growth in the industry came from M&A for assets, and that the WACC was currently pretty high within the firm. It fit.

Later, I asked a panel of General Partners (GPs) how frequently, in their substantial experience of dealmaking and investing, did the GPs have such contingency planning (operations risk management, really) conversations with the portfolio company senior management? Did such conversations impact the outcomes of their investments?

The response, as I am beginning to expect from superb panelists, provided insights into GP operations.

On a tangent, a panelist was of the opinion that folks like Gary Loveman operate at a different level. As the one who raised the question, I was inclined to agree. What an insight into talent- all from a simple question put to a CEO!

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

I am not selling the product...

2008-03-24T10:39:00.000-07:00

...just the message:
http://www.youtube.com/watch?v=m5xCGZuvhWI

Notes on first impressions of the ad seen on CNBC during Lunch:
1> The background score by Gustavo Santaolalla has parallels with Indian music.
2> Its a 90 second spot. The rationale? Apparently, time is the only true luxury.
3> This is an interesting brand initiative- and is the first Louis Vuitton TV ad ever.

What do you think?

Conference Panel: Investing in India- The Maturation Process, whats next?

2008-03-24T10:38:00.000-07:00

The amazing panel, drawing from PE, management consulting and IB firms emphasized that they are taking a long term view of the Indian market and are doing well thought out due diligence on deals to make the best decisions for the funds. Deals have been quite competitive and negotiated.

This approach raises a line of thought regarding the non-core (?) activities of a PE fund. Why am I calling them non-core? Well, most folks would say that the only core activity for GPs is to find good investments and fund them, the rest can go for a toss. Performance is the cornerstone of success. The "official" lore is that the high performing GPs do not really have to bother much about non-core activities.

This query on capital deployment and how much GPs think about it is still worth considering as it seems to be closely tied with fund raising. The response to the query by the GPs can be that they do not really care about capital deployment as they tap into their funds on an deal by deal basis. However, I am inclined to think the GPs have a sense of what the LPs are thinking of when LPs make investments in the PE funds. Sounds like business development, doesn't it?

Anyhow, non-core or otherwise, lets dig into some aspects of the PE business. How do the GPs:
1> Handle uneven deal flow?
2> Manage different relative risk levels across deals?
3> Manage different rates of returns on their deals?
4> Set LP expectations on deal flow and deal sizes, across business environments, while still keeping LPs on board?

What do you think?

From the LP point of view, How do LPs:
1> Manage cash (e.g. lack of predictability in drawdowns)?
2> Allocate capital, from the asset allocation policy and portfolio management point of view, between drawdowns, and for drawdowns?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Conference Panel: Selling to the Indian Consumer

2008-03-24T10:37:00.001-07:00

Amazing insights from consumer electronics and retail consulting. A consumer electronics company was focusing on the top 30 cities, despite indicates that the rural market had as much disposable income as the urban market. This raised a couple of questions from me during the panel.

What kind of innovations in distribution do we see in India in the next 5 years?

What do you think?

Can the Consumer Electronics companies contribute to more active usage of the cellphone screen? This query had an interesting response and an unexpected fact component- India uses only about a third of the spectrum that the US currently uses.

Does the Indian cellphone consumer need an industry association comprising of consumer electronics companies, software companies, infrastructure companies and investors to encourage more active usage of the cellphone screen?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

Keynote address: Vinod Dham, NEA- Indo-US Ventures

2008-03-24T10:34:00.000-07:00

The amazing keynote by Vinod Dham has parallels with a keynote (different conference) by Alan Patricof, Managing Director, Greycroft, with respect to his experience in Venture Capital in Africa. Vinod was bullish about opportunities in India.

His talk raise a query. What is the difference in managing a $200 MM fund in Silicon Valley vs. a $200 MM fund in India?

On the dealmaking end:
1> Do you do more deals?
2> Do you invest in companies that are more late stage?
3> Do you invest in companies that can bring in and ramp up revenue pretty quickly?

From personal experience, Indian startups are able to keep costs pretty low.

On the investing end, what kind of support do you need to provide to startup leadership?

The Indian technology clusters- Mumbai, Delhi, Bangalore, Hyderabad, Chennai- are not as mature as the Silicon Valley cluster.

What do you think?

Conference Panel and Keynote: Managing Local vs Global

2008-03-24T10:32:00.000-07:00

Ravi Venkatesan, Chairman, Microsoft India, talked about how the Indian market and how its challenges were different from those in the US.

How does the local leadership deal with a global company's priorities while "tending" to the local market? Does the company's DNA allow for a global/ local market trade-off based on the type of market (socio-politico-economic environment)?

What do you think?

Conference Panel: Infrastructure in India

2008-03-24T10:30:00.000-07:00

Commenting on the delays in getting infrastructure projects off the ground toward creating a project pipeline, G.V.Sanjay Reddy, Vice Chairman, GVK Industries Ltd., pointed out that it is more important to get decisions made in getting infrastructure projects off the ground as opposed to developing detailed policy frameworks. That's the 30,000 foot eyeview of the problems in execution.

This, coming from an India company, seems to make sense. The India company has expertise in managing vested interests throughout the project lifecycle and a greater appetite for management risks.

Could there also be a realization that once Indian firms develop core capabilities and differentiate, a network of firms/ contractors/ sub-contractors model would become feasible?

Another thought that I would have like to pose to the policymakers is the consideration they give to developing policy roadmaps.

What do you think?

Conference Panel: Media & Entertainment in India

2008-03-24T10:27:00.000-07:00

TATA Sky setup a nationwide support structure in India, flat. It is growing at a pace that is set to drive the company to leadership in satellite TV subscriber base.

How does a company manage operational decisionmaking, organization structure, core competencies, vendor relationships, training, and breakeven in such a context?

What do you think?

Given that India has over 250 MM cellphone screens, versus upto 50 MM in PC screens, how do service providers support the growth of applications and products for the cellphone screens? Does a Microsoft-Facebook dealmaking approach work in an Indian context?

What do you think?

1> India seems to have a lack of startup oriented risk-taking despite a large pool of enterpreneurs.
2> The Indian market does not have mature "competitive" technology clusters and mature financial players that support various stages of a company's lifecycle in a cluster.
3> Leaders from Microsoft India, pointed to a lack of expertise in business models.

This lack of business model innovation may be impeding a ramping up of local application/ product based activity. Would a Microsoft-Facebook type deal-making model- as a means for service providers to support cellphone market development- work in India?

What do you think?

Conference Panel: Trends in Private Equity and Venture Capital Sectors in India

2008-03-24T10:25:00.000-07:00

Given a trio of PE, VC and IB players in India, the panel met high expectations. Some facets talked about:
1. Debt market in India
2. Constraints in structuring transactions
3. Regulatory environment and red tape
4. Nature of targets (family driven enterprises), time horizons and deal flow networks

Given these factors, I wondered how the firms managed risks- not just financial risks. I queried the panel about their experience with a deal that did not meet experience.

What do you think?

The VC investor, who had significant experience in investing in India provided an interesting insight, that emphasized the efficiencies that the PE/ VC firms can find across funds and investments/ deals.

The response also threw light on the "transaction costs" that mutual fund like SPAC aggregators would face that would make them replicas of publicly traded PE firms.

The panel echoed some of the points made by Alan Patricof, Managing Director, Greycroft, at a conference keynote, with respect to his experience in Venture Capital in Africa.

The Usual Disclaimer: This is purely a knowledge sharing resource. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.