Group Think

30 11 2010

It’s beginning to look a lot like Christmas. There’s a chill in the air. The skies grow dark in the dinner hour. And everyone is doing their shopping.

Including Google, apparently, for the search engine giant is rumored to be very close to acquiring Groupon, the online social coupon site. Rumors have been flying as to the price of this possible purchase, starting at $2.4 billion yesterday, and now rising to somewhere near $6 billion.

Yeah, I said billion.

If you have never heard of Groupon before, you have either been living in a cave, or hanging out in Amarillo TX. Not that Amarillo is a cave, mind you. It’s just that Groupon only recently added Amarillo (as well as nearby Lubbock and Midland) to its list of cities. Basically, Groupies get an email alerting them to the local deal-of-the-day (usually about 50% off some product or service). If a certain minimum number of people commit to buying the coupon, the offer becomes reality. Groupon then keeps 50% of the already-discounted price.

Today, for example, the deal was for a $15 dining experience at Cattle Call BBQ for a low $7 (a 58% discount). Groupon keeps $3.50, which means that Cattle Call is willing to let people dine for a pittance. Of course, the hope is that Cattle Call will reap new customers; by reducing the risk of trying the restaurant in the first place, Cattle Call is darn near giving the food away just to get us to taste it.

So what’s in it for Google? Plenty. Google understands there is a huge future in social advertising, and since Google is really just an advertising company masquerading as a search engine, this is a beautiful fit.

Groupon is considered by some to be the fastest-growing company ever, worth a reported $1 billion, and has 2700 employees at its Chicago office. Lots of words and phrases come to mind when describing Groupon: Feeding frenzy. Flash mob. Viral. And with membership free and growing exponentially in each market it adds, local businesses would be remiss (even foolish) to pass up the opportunity to participate. After all, their participation is free as well. Any new business would be well-served by Groupon, because it could generate the initial trail that is so sorely needed to lift a store off its feet.

But is it wise to spend $6 buying a company valued at “only” $1 billion, one whose revenues last year were $500 million? I know…I speak of billions and millions as if they were coins in my pocket, but the ratios are still the same whether we are counting nickels or gazillions.

And my answer is a resounding Yes. Google wanted to buy Facebook a couple of years ago, but could never get Zuckerberg to given them a listen. Since that time, Google has foundered about like a fish on the beach, trying to figure out how to go social. Groupon is an opportunity they cannot afford to miss out on, because rival Facebook could just as easily be interested in the acquisition. A bidding war could get real expensive. One thing is for sure: The price is not going to go down from here forward, even if the internet, free markets, baseball, apple pie and the US economy all fall into a pit. Unless you and I and a bunch of our friends can gather up enough dollars to thwart both Google and Facebook.

I’ll trade you a $7 BBQ dinner for your share.

Dr “Get Your Group On” Gerlich





Get Clicking

29 11 2010

With three shopping “holidays” out of the last four, it’s a wonder anyone gets anything done. First there was mayhem at the mall on Black Friday. Then we were entreated to shop locally by participating in Small Business Saturday. And now, after a day off to mow the lawn (or tally our remaining credit limits), we have Cyber Monday.

Hey, as long as your bandwidth can handle it, it’s a lot less crowded at my computer.

Cyber Monday has been around for about five years, the realization that many people had informally been doing what the rest of us have now been invited to join: Shopping online at work after a long, tiring Thanksgiving weekend. And as analysts are now showing, Cyber Monday is a huge player in the retail scene. About 107 million USAmericans (that’s about one-third of us) are expected to shop online today alone.

Well, pass the mouse and log out of your Facebook. It’s time to go shopping.

Analysts are very upbeat about online shopping this Christmas season, expecting an 11% increase from 2009. Furthermore, retailers are pumped as well, with about 90% offering promos today and throughout the holiday buying season.

Of course, the greatest thing about buying online is that stores never close, there’s no trouble finding parking, no whiny kids, and no crowds. On Thanksgiving Day, while we were supposed to be eating turkey and watching football, online sales totaled $407 million. By the time we reach Christmas, it is predicted we will have spent $32.4 billion online.

That’s a little over $100 for every man, woman and child in the US.

Which is another way of saying, for a family of four, that about $400 less will be spent locally, and in many instances, without sales taxes being assessed.

So much for all of those “Shop Local” campaigns. And I bet few if any among us spent $400 a couple of days ago on Small Business Saturday.

Which basically means that we customers are finally starting to get it. As much as braving the elements and crowds have become American tradition, and as much as we pay lip service to the romantic notion of helping our neighborhood shop owner survive, we have truly become a nation of shoppers intent on having access to everything, and buying it completely on our terms. It doesn’t matter if the vendor is in Tampa or Topeka, Dallas or Denver, we want it all, and we want it cheap. Night. Day. On our porch in a day or two.

This new reality may be a hard pill to swallow for some, but there is nothing stopping anyone from joining the fray. I told this to my friend over lunch today, noting that Amazon stock is at $180 per share. Not bad for a business that was started in a garage in 1995, has purchased Diapers.com and Zappos.com in the last couple of years, and is for all intents and purposes, the new Walmart. Never mind that Amazon was awash in red ink the first six years of its existence.

As for me, I have some shopping to do. Online, of course. We’ve already spent $480 today (free shipping…no tax), but I’m not quite done. Yet. And it’s good to know I have 107 million friends out there doing the same.

Dr “Doing My Part To Raise The Average” Gerlich





(Ad)Busted in Vancouver, Redux

24 11 2010

(Note: The following is a re-posting of an essay I wrote for my students back in Canyon on 28 November 2003 while I was in Vancouver BC teaching in our Canada MBA program. With Buy Nothing Day rapidly approach (26 Nov 2010), I thought it apropos to pull this one from the archives.)

I often make references to the Adbusters group in my courses. They are very much against commercialism, materialism, rampant consumption, free trade, and other hallmarks of a free society. The word “liberal” is almost too conservative to describe them.

In 1997 they started Buy Nothing Day, to be held on “Black Friday,” the day after American Thanksgiving. Black Friday is one of the biggest shopping days in the US (and erroneously referred to as the biggest day). The Adbusters group, known for their “culture jamming,” decreed that we should NOT buy anything on this very important shopping day.

They have received a lot of free publicity from their endeavors. That year (2003), CNN ran a story on BND on the 27th of November (American Thanksgiving).

Well, as you know, I was in Vancouver BC Canada during Thanksgiving. I also happened to recall that Adbusters is headquartered in Vancouver.

Ah ha…and now you know where I’m going with this!

I thought it would be extremely appropriate for me to visit them on Black Friday, or BND, as they call it…to see if they would sell me something.

Having awakened to a downpour (nothing new in wintertime Vancouver!), I got my oldest daughter ready, and dove into Vancouver a.m. traffic, headed for an address I had peeled off the Adbusters website.

I traveled westward on West 7th Ave, and managed to go right past the place. I was confused, because I was in what appeared to be a residential district. I turned around, and headed east a little more slowly…and then saw the little sign on the north side of the street. The main entrance was a few steps down into a basement of a large, old house.

Stepping across the threshold, daughter in my arms, I beheld the headquarters of the anti-marketer.

A couple of very casually dressed people said hello, one a woman, the other a man. Mac computers adorned several desks. Magazines were stacked everywhere in huge bundles. Buy Nothing Day posters hung on the wall, along with other evidence of their political leanings (like their opposition to the western hemisphere free trade talks in Miami earlier that month).

The two looked very thin. Why is it that capitalism’s biggest critics always look hungry?

I said hello in return, began thumbing through some magazines, and then picked up a 2004 Adbusters calendar.

I casually asked the woman, “Hey, are these for sale?”

“Yes,” she replied.

“How much?”

“They’re $15, but we’ll let you have it for $10 here in the office.”

“How about magazines?”

“Six dollars in the store, but $3 here.”

“Can I have one of each?”

“Sure!”

Man, I never thought it would be so easy to catch someone in the act of hypocrisy. Here it was, their self-proclaimed Buy Nothing Day, and they were tripping over themselves trying to sell me things.

I handed over a CAD$20, which they had difficulty handling. They returned with a handful of parking meter money.

Then I told them, “In real life, I’m a marketing professor. I’ve used your site for years to have my students see what the other side is saying.”

You should have seen their jaws drop, for they knew they had just been busted.

Continuing to play with them, I seized the moment. Carpe diem, baby. “Yeah, I like to use the Fox News approach to teaching…you know, a ‘fair and balanced’ education.”Even though I don’t like Fox News, it was a convenient card to play.

“So, do you have any literature I could take back to the classroom with me?”

“Hmmm….we don’t actually have anything…but wait, we have some back issues here.”

I walked away with a year’s worth of magazines, my ill-gotten calendar and current issue, my daughter, and the satisfaction of knowing that even the most liberal of folk have a capitalistic gene in their DNA.

I loaded my daughter and propaganda into the rental van, drove to Toys ‘R Us to buy my kids a treat, and then headed off to the magnificent MetroTown mall (over 450 stores bedecked in all their greedy capitalist glory!).

And we proceeded to spend unimpeded. This. That. One thing. Another.

So much for Buy Nothing Day.

Dr “You’re Busted!” Gerlich





Net Profits

23 11 2010

Only 13 years have passed since the introduction of the DVD in the US, and already industry wags are preparing for its death. And to slightly paraphrase (and twist) a quote for which Mark Twain is often credited, its impending death is not at all exaggerated.

Case in point: Netflix announced new pricing plans yesterday for its streaming and rental services. For the first time, Netflix is offering a streaming-only price ($8/month), while rental service levels will all increase between $1 and $3 per month. The cost increase reflects Netflix’ need to recoup more postage costs, while the lower streaming price indicates their desire for all of us to simply do away with rentals entirely.

Netflix expects its DVD rental business to peak in 2012, and start a precipitous decline. Some analysts predict DVDs to linger another 20 years, but admit the final years will be very lean (much like the few VHS tapes still being sold and used). What we are enduring now is yet another format transition, as we leave once and for all our tangible products behind, and adopt the digital format.

The profit potential for Netflix is huge, even with a lower price for streaming-only customers. There’s not a whole lot of overhead with that business model. It is really no different from music listening services like Rhapsody. Royalties apply, and whatever the cost of managing the servers and bandwidth. That’s it.

In the mean time, I’m wondering what is going to become of all the DVDs (and CDs) that people like me still own. We may have “gone digital,” but we have left a lot of tangible evidence behind. Those discs were made to last a long time. While my household has gone beyond its peak consumption of DVDs and CDs, Netflix only has 16 million customers. That may sound like a lot, but there are about 110 million USAmerican households. This means that only about 15% are actually, and not all of these are purely digital.

Still, it’s not too early to start digging the grave. Just don’t toss my DVDs in yet. I haven’t had a chance to watch them all.

Dr “I Could Use A Long Weekend” Gerlich





Domestic Matters

22 11 2010

Back in 1979, when I bought my first car (a Toyota Corolla), I was about to become a junior at Anderson University in Indiana. At that time, Anderson was known far and wide as a General Motors town. The 70s had been glorious years for GM, but by the end of the decade, the economy had turned south, and Japanese cars had begun to make serious inroads in the US market.

Did I say that my first car was a Toyota?

Being a GM town, it was necessarily very pro-union. I had the good fortune (I’m being facetious) of living within a mile of the union hall, both when I lived in the dorm that junior year, and then in an off-campus apartment my senior year.

And I lived in fear that I would waken one day to find my little blue Corolla had its windows busted out by a disgruntled (and unemployed) auto worker.

I suppose that when the unemployment rate is over 20%, you want to pin the blame on anything (and anyone) you can. I was the bad guy. Oh, and I forgot to mention that my Dad was actually a career GM employee in Chicagoland, yet fully endorsed my purchase. He, in fact, went on to buy three Toyotas himself. All this at a time when “Buy American” was a powerful sentiment, often used by marketers to tout their domestic manufacture, as well as a guide for consumers to buy locally.

But as the years have elapsed, the notion of buying American has lost much of its luster. It sold well in the late-70s because many of the adults had served in foreign wars (notably WWII), so hatred for Japan-anything was an easy sell. That same sentiment, though, just doesn’t seem to resonate like it once did.

As reported in today’s USA Today Snapshot, there are huge generational differences, with America’s oldest persons being the most likely to be influenced by ads that promote American manufacturing. The younger you are, the less likely this message rings home.

Having been a free market economist since my college days (and my double major in Economics and Marketing), I have never been one to fall for guilt trips or economic jingoism, and I resent any protectionist laws that seek to limit our global access to goods and services. As one of my MBA Marketing profs once said, “Protectionism is the hallmark of a developing economy.”

Ouch.

While it is always nice to be able to purchase things both made and sold near to home, sometimes the value proposition simply does not add up. Yes, it may be very noble, even patriotic, to spend one’s money in a way that benefits American (or local) businesses, but we also need to look after our own economic self-interests.

To be honest, had it not been for those WWII skirmishes with Japan, I doubt we would have ever had such strong Buy American sentiments in the first place.

But much water has passed beneath the economic bridge, and now Japanese cars (and many other products) are mainstays in our economy. They are more likely than not to even be manufactured in US plants. And they have proven themselves through the years to be reliable products, and worthy of our purchase.

I also think that education has shown us that we live in a global village. Thomas Friedman’s landmark 2004 The World Is Flat spelled this out in amazing clarity. Silos must come down, if they have not done so already. Manufacturing will always seek out (and find) the low-cost labor and material inputs, whether they be in Bangor or Bangalore. And thanks to the internet, we can shop 24 hours a day from Anaheim to Albany (and Amarillo in between).

Thus, I am not surprised at the numbers quoted therein. It would likely take a full frontal assault, much like Pearl Harbor, for America’s young adults to develop a hatred for another country like that which the Greatest Generation had for Japan.

As for me, my car was never bashed. I always tried to park it under a street light, and I prayed hard. Real hard. Because I just couldn’t stomach the thought of caving into someone who couldn’t compete in the global economy. Even if it meant he lost his job.

It’s a hard pill to swallow, and I stake my claim that being an American means being free to purchase as I see fit. Free from guilt. Free from intimidation. Free to choose.

Dr “Wish I Still Had That Corolla” Gerlich





Down In The City

21 11 2010

They are without doubt the most annoying aspect of my Facebook experience. Farmville, Mafia Wars. Online Poker. You name it. Social gaming may be huge, but it clutters the social graph.

Unless, of course, you actually happen to like playing those games and telling everyone about it.

Apparently a lot of people do, because Zynga, creator of Farmville, Frontierville and others, is now recognized as the premier gaming company, valued at a mind-boggling $5.5 billion. It just announced plans to launch CityVille in 2011 in hopes of further endearing itself in the hearts and minds of social network fans. Instead of tractors, livestock and crops, players will be building skyscrapers and managing city services.

So why all the buzz?

Simple. These games bring with them not just a ton of advertising possibilities (think: branded locations, products, etc., within the games), but also potential sales of game enhancers (like farming tools). Toss in all of the diverse personal data these games collect about the players and their friends, and you quickly realize that Zynga is sitting on a gold mine. In terms of game enhancers, Zynga has about one-fourth of the $1.7 billion US market.

While I will probably never be a fan of these games, I respect those who do. I also respectfully hide all of those apps from my News Feed, but that’s another story. To ignore this aspect of social networking, though, is foolish, for it represents a huge portion of the people who use the networks in the first place. Some of my friends post nothing other than their game updates. And while I would much rather read the story of their lives than the latest development on their fantasy farm, I recognize that maybe those farms are their stories. Again, I am OK with that.

All told, some 320 million people worldwide have played a Zynga game; 225 million play at least once a month. That’s a lot of eyeballs. And we all know that in this game, the battle is all about eyeballs.

Which brings me to my point (in case you were wondering). This would be the perfect acquisition for Google. Thus far Google has not been able to even come close to launching a social network, much to their embarrassment. So why not pull out the checkbook and just pony up the cash? This would actually give Facebook something to worry about, because as it stands, Zynga is actually working to FB’s benefit. It provides no threat whatsoever to FB’s dominance, for Zynga is not interested in creating its own social platform.

But Google is.

If Google bought Zynga, it would be little different from China buying an increasing number of US banks and corporations. This is not about getting one’t foot in the door; no, this is about being in all the way up to the hip.

Irony can be funny that way. What is probably the most annoying aspect of my FB experience could, if Google is smart, become the most annoying in Facebook’s own experience. Plow through that thought awhile.

Dr “Green Acres” Gerlich





Counting Calories

20 11 2010

Never under-estimate the power of lobbying, for it can help sway and lead legislators in such a way as to favor your company or industry. But never assume this sway will last forever.

Such is the case for the restaurant industry, which in the near future must come clean and visibly post calorie contents in their menus as early as 2011. That quadruple bypass hamburger really is unhealthy, and the numbers won’t lie.

Historically, only packaged foods in the US have been required to list nutrition facts, but starting soon, restaurants will be required to tell just how good…or bad…their food really is. Unprocessed food sold in supermarkets (e.g., raw meats, seafood and veggies) will continue to skate through without labeling laws.

For health freaks like me, this information is welcome. Restaurants are already notorious for serving ever-growing portions. And I know those extra mouthfuls don’t come calorie-free. I want to know what I am eating and how many miles I will have to ride the next day to make it go away.

But I wonder just how effective these things are going to be. The warning statements on beer and other alcoholic beverages don’t appear to be working (do any of you even know what they are?). Even the warnings on products containing either Saccharine or NutraSweet are virtually invisible. And one could argue that the warning labels on cigarettes and other tobacco products have not been as effective as hoped, lest we wouldn’t see the FDA proposing much more graphic labeling.

Still, I can see the restaurant industry becoming a little nervous. No doubt there will be much media coverage and hand-wringing once this information becomes easily available. Never mind that there will certainly be variations from one plate to the next, unless precise measurements are used to dole out everyone’s orders.

The fact that this new law even exists is proof that America’s obesity problem has gotten the attention of politicians. That alone is a scary thought. And politicians are often wont to try to effect change by regulating the providers rather than the users. They have effectively made restaurateurs complicit in our growing waist lines, and everyone from the healthiest vegetarian vendor to the grossest heart-attack-on-a-plate purveyor is going to have to play by new rules.

And what of the resulting guilt with which many patrons will no doubt have to deal? So much for a nice romantic dinner. Rather than fantasizing where the night may lead, you will be dreading tomorrow morning’s double workout.

But this is one intervention with which I can live. It’s not that the government is telling vendors it can no longer sell unhealthy food. No, it is just requiring them to give us the facts so that we might all make more informed decisions.

If you’re obsessively trying to count what goes in vs. what is burned, this is a godsend. For once I will be able to know just how good the pasta marinara is, or just how bad (I suspect) the eggplant parm with cheese is. I’m old enough to understand cause and effect, and at 51, I’m trying to preserve life, not spend it dangerously. Give me the facts, good or bad. I plan to be around a while.

I’m counting on it.

Dr “It All Adds Up” Gerlich