Taste the Rainbow of Fruit Flavor
The hoopla generated this week by the recent Skittles website redesign has been remarkable. For all three of you that haven’t seen it, the Skittles.com homepage is now a daily rotation of various social media sites from Twitter to Facebook to Wikipedia today.
The Internet was all ‘atwitter’ about the move, generating buzz around the brand in a way I’ve rarely seen it — positive or negative. And the haters have certainly come out in full force. I can’t even count the number of blog posts I’ve read decrying the Skittles stunt as stupid, inane, pathetic, silly — you get the idea.
And that is exactly the point. What Skittles has pulled off is brilliant. Brands spend millions of dollars in a desperate struggle to generate buzz. Skittles did it without spending a dime.
So I don’t care what anybody is saying about the quality or relevance of the campaign. Skittles took a huge risk by opening their brand to the user community. In return they did that elusive thing marketing is always trying to do: they got everyone talking. And positive or negative, it just doesn’t matter. Because in the end, the only thing folks will remember is the rainbow of fruit flavor.
I think I’m going to go out and buy a pack of Skittles.
Always Act From a Position of Strength
Nielsen and LRG released their latest media consumption reports yesterday, with some very encouraging results for the traditional media business.
The money stat from the Nielsen Q4 report:
The average American watches more than 151 hours of TV per month, an all-time high.
The key conclusion drawn in the LRG study:
The impact [of online viewing] on traditional TV viewing and multi-channel video subscriptions [cable and satellite] has been “negligible.”
Further, according to the LRG study:
Among all adults online, [only] 3% strongly agree that they would consider disconnecting their TV service to just watch video online – compared to 4% last year.
These results are certainly great news for an industry increasingly besieged by forces of change, perhaps still more ‘vocal’ than ‘real’ as confirmed by the latest research. And they are even more welcome as we face perhaps the worst economic downturn in our history.
I fear though that these results, as they often tend to do, may breed complacency in a media industry that should be bracing for change. Granted, with all the talk of convergence, the consumer is still not there. But mark my words he’s coming quicker than you realize.
Peeling back the onion on these two reports, a number of the secondary stats point to clearly shifting behavior:
- 74 million people watch time-shifted television vs. 54 million people in the fourth quarter of 2007, a 37% y-o-y jump.
- 31% of Internet activity occurs while consumers are also watching television.
- Young viewers (18-24) watch video on the Internet and on a DVR at the same rate: about 5 hours per month.
Simultaneous web surfing and TV viewing, the increasing move to time shifting and the growth in online video consumption, especially amongst the younger generation, are harbingers of what is to come — a largely on-demand, networked, social, lean-back viewing experience. It’s simply a matter of time.
So how should the media industry, and specifically the cable companies (where most of the value in the chain is consolidated) respond?
It is precisely at these times that they should use their existing power with consumers to lead innovation, rather than stifle it. The cable industry should act from a position of strength, ensuring that they emerge in the wake of disruption as a powerful force rather than a regulated utility.
This will involve some tough decisions and some serious wrangling between content creators/owners and distributors. But in the end, it’ll likely require some variation of the following (with many specifics of course to be worked out):
- Full embrace of the Internet as the platform for content delivery.
- Charge consumers for tangible usage rather than opaque bundling.
- Redesign content packaging to be useful for consumers rather than to protect sub-par programmers. Feed the good networks, kill the bad.
- Embrace third-party innovators and new technologies, such as Boxee (a Spark portfolio company) and others, leading the charge on the consumer front.
- A potential shrinking of overall revenue. To protect and grow margins in this new reality will require, in addition to the aforementioned ‘killing of bad networks,’ a reworking of the inflated content creation model and an end to inefficient uses of marketing dollars.
Admittedly this reality is a long way off, perhaps 10+ years before it comes to full fruition. But the time to act is now, and all parties will be better off when that day comes — cable companies, content creators, innovators and, most importantly, consumers.
Is The Long Tail Too Long?
Martin Peers made an important and often ignored point in his piece on online advertising in yesterday’s WSJ. Weakness in the online ad market, specifically display advertising, is not simply a current demand issue. Rather, we have a fundamental oversupply problem in the market that is only going to get worse.
As web publishing continues to be democratized, the same happens to web ad inventory. And there’s simply not enough brand advertising dollars to satisfy the level of online inventory continuing to grow by the second. So prices get hammered across the board and smaller sites are simply left out in the cold.
Contrary to Chris Anderson’s hypothesis, The Long Tail is simply too long to be that valuable.
So how do we make money given this reality?
On the brand advertising side, it’s all about scale. The larger a *relevant* audience you can deliver an advertiser, the more meaningful you are to them. There are a number of sophisticated ways that have emerged to improve user targeting and thereby relevance of audience delivery. But in the end it must be done at scale to matter to advertisers. It’s as simple as that.
More important to the future of revenue generation on the web is our ability to tap directly into consumer’s wallets. Many have been talking about digital goods for some time, but it’s emergence is becoming ever more clear to me. As we spend more time online, more of our discretionary spend will follow; the more we live online, the more digital goods will look like regular goods.
We are just at the beginning of this migration. Most of the winners are yet to emerge. But businesses that tap into this inevitable trend early will have a meaningful advantage in the coming digital economy. They will build their retail brands on prime real estate before others have an opportunity to do so. We’re certainly thinking about this a lot across a number of Spark portfolio companies.
The Importance of Great Leadership
Chris Anderson’s piece in this weekend’s WSJ, The Economics of Giving it Away, has sparked a lot of digital conversation over the past few days.
As I’ve stated previously on this blog, I fundamentally agree with Chris’ notion that in order for online businesses to create big profitable companies they will have to start charging for great (making them great is not trivial of course) services. Advertising alone will not be able to fill the void.
This is not a new concept for consumers, even on the web. For years, consumers have paid for dating sites, listings sites, gaming sites and others.
Keying off Chris’ piece, Fred Wilson wrote a provocative post extolling the virtues of Internet business models that drive cash flow through a rigorous focus on scalability and cost minimization. There is of course truth to Fred’s point that revenue and cost have a 1:1 relationship and a dollar lost of one is as good as a dollar gained of the other.
But, as I commented on A VC, in order for a company to be both big and profitable I believe they need to do both — maximize revenue and minimize cost.
Part of the distinction here is simply a stage thing — earlier-stage companies benefit tremendously from lean teams and nimble operations that can move quickly to build product and adapt it to market needs. But over the life-cycle of a great company, without investing to grow the top-line there is a fundamental cap imposed on profit and value.
So how do great companies manage to effectively do both? I believe it all comes down to great leadership. This may sound trite or obvious, but I don’t think it can be emphasized enough. This is a CEO’s fundamental challenge — maximizing revenue while minimizing costs, investing in the strategically important and positive ROI projects while maintaining a relentless focus on efficiency that always has the organization feeling one person short of fully staffed.
How do great leaders do this? They hire and empower incredibly talented people in all key functional areas, and those people in turn do the same all the way down the line. They focus almost all of their attention on capital allocation, to make sure money is always spent prudently and in the right places balancing all of the company’s short-term and long-term interests. And they create a culture of performance and accountability that permeates the entirety of the organization.
And that’s why the right leader is so critically important to the success of a company. If there’s anything that’s been confirmed for me in my early days in the venture business, it’s that great people best great ideas any day of the week.
