Business Insight Zone

Debated with myself whether to write about this, but then my friend Gini Dietrich said it better than I could have — and from the perspective of a P.R. pro:

Should Apple Have Disclosed Jobs’s Liver Transplant?

. . . I disagree that Apple and its board think Jobs’s health is a private matter. He has made himself a public figure synonymous with the brand; he is the face of the company. Many believe his health is instrumental in the stock performance of the company. While the U.S. has strict medical privacy laws, Jobs’s role as the company’s visionary trumps his right to privacy.

What she said — Apple could have done this much better.

Related story on this topic:

• USA Today: Jobs’ liver transplant shows money can make a difference

And three more posts from the archives:

• Steve Jobs’s health: a brief note. (28 July 2008)
• Banking on the founder’s mojo.
• Steve Jobs, rock star.

~

We’re living through an economy that’s evolving, uh, rapidly, not to say vertiginously.

Lots of comfortable notions we held about markets and industries have been broken down over the past year.

Housing, consumer goods, energy, automobiles, employment, credit markets . . . all of them are up in the air in important ways.

Sure, try to get the best insights you can from experts. Find economic news that’s relevant to you and make the best use of it you can.

But in these tumultuous days, be wary about headlines that report “unexpected” results in Economic Indicator X. Two examples from this morning:

• U.S. Economy: Goods Orders Unexpectedly Jump as Recession Eases
• Purchase of new homes in the U.S. unexpectedly fell in May

Each of these stories has something interesting to convey, but the most interesting part may not be that the indicator in question did something that the experts weren’t expecting.

The most interesting part may be that the entire fabric of our expectations will continue to be rumpled and pleated by the complexities of the economic relationships that prevail in today’s world.

Here’s the best “unexpected” headline I’ve found this week:

• Trichet Says Unexpected Turmoil Could Hamper Recovery

You’d better believe it.

~

Monty Python image (”No one expects the Spanish Inquisition!) via Wikipedia.

Last week I posted some thoughts from my colleague Chris Barton about the upcoming shift at eMusic, which will incorporate Sony’s back catalog into its downloading service.

Since then I’ve learned a lot about how a company can tick off its once-rabid fans. At the same time eMusic is introducing the hits of Springsteen, Dylan, and many others, it’s rejiggering fees so that subscribers can download less music for the same monthly rates they’ve been paying. The backlash has been pronounced, as you can see by looking at the “#emusicfail” hashtag on Twitter — or by reading the comments on the original post.

Thing is, eMusic may not even suffer for enraging its longstanding customers. Colin Alsheimer laid out the logic well in the earlier comment thread:

Larger audience, more mass market appeal . . . it makes sense from a business perspective. Plus those new sign-ups will never be the wiser. That said, they risk severely ruining their brand positioning.

Used to be eMusic stood for Indie/Underground music and value. Now it’s . . . mass market appeal and middle-of-the-pack pricing?

Where’s the differentiation now?

Differentiation or no, eMusic CEO Danny Stein holds that higher prices (a) were inevitable, with or without the Sony deal, and (b) will benefit the indie labels, who have wanted eMusic to raise its rates for some time. You can get a heavy dose of his thoughts in this (sadly poorly proofread) post at the Wired Epicenter blog:

Q and A: eMusic CEO Explains Controversial Price Increase, Sony Deal

So, innovation on behalf of customers and indie labels, or a sellout to capitalize on the big Sony deal? Or maybe some of both? I guess we’ll know more when the big changes at eMusic have had a chance to percolate through the company’s subscriber base.

They do it to drive me crazy.

I love FORTUNE magazine and have been reading it for ages, but this item makes me grind my teeth:

The 10 largest U.S. bankruptcies

To save you from paging through the whole thing, here’s their list, with asset values in billions of dollars:

1. Lehman Brothers — $691  — 2008
2. Washington Mutual — $327.9 — 2008
3. WorldCom — $103.9 — 2002
4. General Motors — $91 — today
5. Enron — $65.5 — 2001
6. Conseco — $61 — 2002
7. Chrysler — $39 — 2009
8. Thornburg Mortgage — $36.5 — 2009
9. PG&E — $36 — 2001
10. Texaco — $34.9 — 1987

(Note that the links for WorldCom and Texaco are to historical records, which are available to Hoover’s subscribers.)

There are two major problems here:

I. Nominal figures. Freshman economics students have it drilled into them that when you compare nominal figures across a range of years, you’re not comparing apples to apples. Yet this list ranks all of these bankruptcies by nominal dollars without a caveat (or, if FORTUNE is using real figures, the article doesn’t say so).

Here’s the same list with everything converted into billions of 1987 dollars:

1. Lehman Brothers — $413.2
2. Washington Mutual — $196.1
3. WorldCom — $73
4. GM — $54.4
5. Enron — $46.8
6. Conseco — $42.9
7. Texaco — $34.9
8. PG&E — $25.7
9. Chrysler — $23.3
10. Thornburg Mortgage — $21.8

(Note that the calculator I used only went through 2008, so I used that year for 2009 bankruptcies.)

Granted, this doesn’t change the order of the top six companies on the list, but (a) innumeracy about real and nominal values is common enough that it ought to be opposed at every turn; and (b) this listing at least compares apples to apples in terms of scale.

II. Financial assets. Banks, mortgage companies, and other financial services companies are in the business of holding assets. I ran a search on our Build a List tool for companies with more than $100 billion in assets, and what do you know? — it was dominated by banks, insurers, and the like for page after page.

In other words, it doesn’t work to suggest that the Lehman Brothers bankruptcy is seven times as big as the General Motors because Lehman held seven times as much in assets. We could compare revenue ($19 billion to $181 billion for fiscal 2007) or employees (28,600 to 266,000) or something else, but grading on assets alone gives us a false picture.

Or am I just missing something? Bankruptcy experts, economists, et al. feel free to weigh in — the floor is open for comments.

~

Photo by Ed Yourdon, used under a CC-Share Alike license.

Regular readers of Scalzi’s blog will know he’s a good one for a choice phrase on most any subject, but in this post his success as a blogger and science-fiction author and his background as a print journalist merge to inform his opinion particularly well:

The problem I have with print people blaming the Internet for their troubles is that blaming the Internet allows them to ignore — and indeed, actively avoid — taking responsibility for their own acts that have contributed and are contributing to their current bad times. This happens with all print media, but SF is really hot on it. And it’s bunk. Long before the Internet could have been an active threat, subscriber numbers at the science fiction magazines were dropping. If the Internet is a dire threat to them now, it’s in no small part because they made themselves sick enough to be picked off by one major threat or another, and it just happens it will be the Internet that will deliver the coup de grace (in fact it’s rather more likely it’ll be problems with magazine distributors, but hey, why not blame the Internets anyway?).

(Read the whole post at this link.)

The bit about publishers’ making themselves sick enough to be picked off reminds me of a favorite quotation:

If a particular cause, such as the accidental outcome of a battle, has destroyed a State, a general cause existed that created a situation in which the loss of a single battle could result in the collapse of the State.
–Montesquieu

Which also reminds me of Hemingway’s line that bankruptcy happens “Gradually, and then suddenly.”

That’s what’s been happening to too many members of the print-media old guard for many years now. Since I cut my eye teeth in print journalism, that makes me a little sad — but the wailing from the print-media dinosaurs Scalzi talks about just makes me annoyed.

~

Two streams of thought converged for me this afternoon . . .

1. I’ve long enjoyed Heidi Moore’s work for the Wall Street Journal, and was pleased by the revised version of this piece:

The History of Mike Mayo Bank Downgrades

The first version of the piece, which I read this morning, included examples of Mayo’s bearish projections for U.S. banks, and of the sometimes vitriolic reactions to those projections by bankers, but it didn’t actually say whether Mayo was right in his projections. The revised version does exactly that — and provides more detail all the way around. (Kudos to Moore for responding to commenters who were calling for these details.)

2. After reading this post by Dave Livingston, which kindly quotes some of my own thoughts on Warren Buffett, I followed pointers from Dave to these two articles:

• Nicholas Kristof in the New York Times — Learning How to Think
  
• Sharon Begley in Newsweek — Why Pundits Get Things Wrong

Both of the articles talk about the research of psychology professor Philip Tetlock, who has spend decades studying the nature and quality of predictions made by pundits. It’s fascinating stuff — with big implications for the way we create and consume media, if we’re willing to consider those implications.

Tetlock figured out that the quality of predictions had little to do with having advanced degrees, pursuing one academic discipline instead of another (or none), having policy experience, or being of any particular political school of thought. He did find that the most famous pundits tended to be the most wrong.

So, who made the best predictions? Foxes, not hedgehogs.

I’ll let Begley explain the language (and encourage you to read her article in full):

That bestiary comes from the political philosopher Isaiah Berlin, who in 1953 argued that hedgehogs “know one big thing.” They apply that one thing . . . everywhere, express supreme confidence in their forecasts, dismiss opposing views and are drawn to top-down arguments deduced from that Big Idea. Foxes, in contrast, “know many things,” as Berlin put it. They consider competing views, make bottom-up inductive arguments from an array of facts and doubt the power of Big Ideas. . . .

In short, what experts think matters far less than how they think, or their cognitive style. At one extreme, hedgehogs seek certainty and closure, dismiss information that undercuts their preconceptions and embrace evidence that reinforces them, in what is called “belief defense and bolstering.” At the other extreme, foxes are cognitively flexible, modest and open to self-criticism.

Pardon me for a moment while I pat myself on the back for being a fox. (No one who knows me would ever accuse me of being a hedgehog under Berlin’s definition.)

Okay, so what do we do with this knowledge? Keeping in mind what I said last week about why I don’t write on politics, I suggest three things:

1. Stop listening to hedgehogs.
   
2. Undermine our own hedgehog tendencies.
3. Ask for the score.
   

The first step implies some possibly radical changes in our media consumption habits.

The second step may require some serious changes to our habits of thought, if we’re used to seeing the world in ideological terms. It occurs to me that there might be a connection within companies between being stuck in a way of thinking and being persistently wrong about — and thus unprepared for — the future.

The third step requires that we return to the data, over and over. Some of the commenters on Heidi Moore’s post this morning were ready to hang Mike Mayo from a yardarm for . . . for . . . well, apparently for having the gall to challenge the sanctimony of Big Banking. That’s hardly a good leg to stand on, if we’re trying to make sensible arguments.

Now, over to you:

• What are some of the worst sources of hedgehog thinking you encounter in business?
• What do you do to fight hedgehog tendencies?

~

Photo by Alexander Konovalenko; used under a CC-Share Alike license. No actual hedgehogs were harmed in the making of this blog post.

Stop me if you’ve heard this one before: news headlines can be grossly misleading.

Example #1: Consumer Spending

Top story on the Google News business page this morning: the numbers are in for February’s U.S. consumer spending.

The Bloomberg headline is the most accurate; the Times headline is accurate if tepid; the MarketWatch headline is (in my view) simply misleading.

Larger issue: there’s a big difference between a decline (or “fade” etc.) in something and a decline in growth in something.

The Madness of Earnings Season

The worst offenses in this vein often come during earnings season, when things get much more complicated. The key reason for this is that there are so many numbers in play:

1. revenue
2. earnings (and, by extension, earnings per share)
3. revenue growth
4. earnings growth
5. analysts estimates of #1 - #4
6. share price

If all the numbers tell the same story, no problem. But what if all of these things emerge from XYZCorp’s quarterly report:

• flat revenue, ergo
• decline in revenue growth;
• increased earnings, but
• a lower year-over-year rate of earnings growth;
• dissapointment among analysts about one or more of these numbers; and
• a sharp decline in share price.

That set of facts could lead to many different headline interpretations, for example:

• “XYZCorp Sees Higher Earnings on Flat Revenues; Shares Decline”
• “XYZCorp Shares Hammered after Revenue Miss”
• “Lackluster Earnings Growth Pummels XYZCorp Shares”
• “XYZCorp Grows Earnings Despite Tough Economy”
• Et cetera.

The point is, the set of numbers is complex enough (and that’s before we get into things like EBIDTA, “pro forma” earnings, and the like) that the headline writer can often decide which spin to put on the story, then write the headline to suit — much to the detriment of the reader trying to make sense of things.

Example #2: Layoffs

Another story from the same page of Google News:

Again, Bloomberg gives a sober take on this, as does the Guardian. The top headline? . . . Not so much. The problem is “slash.”

Now, I realize that the story is appearing in the Boston Business Journal, and I grant you that losing “scores of job” in your area isn’t good news. But “slash”? No. A quick look at the historical financials page for our record on Google reveals that the company has had at least 3,000 employees every year since 2002, and that as of December 2008 it employed 20,222 people. Cutting less than 1% of a company’s workforce doesn’t — can’t — equate to “slashing” jobs.

Especially when the Bloomberg story clarifies thus:

The cuts will affect workers globally, Google said in a blog posting today. Employees will have a chance to find other positions within the company. There are no plans for further cuts, spokesman Matt Furman said.

The moral of this story: Especially since the real implications of the business news are bad enough these days . . . let the headline reader beware.

~

Top image via the Library of Congress.

One of the advantages of using social media for business is that you get to meet all sorts of nifty people who share interests with you on both personal and professional levels. Case in point: Jessica Flynn of Red Sky Public Relations in Boise.

I got to know Jessica a little bit from reading her blog and from talking with her on Twitter. Among other things, I found out that we both went to the University of Texas, and that we share an abiding love for the croquetas at Bar Gernika in Boise.

Like me, Jess brings a journalist’s background to the business world; also like me, she spends a lot of time thinking about how social media is changing the business landscape. Since she’s a P.R. professional, her particular areas of focus are (1) how social media can enable a more enlightened practice of public relations, and (2) how the Web is altering the traditional journalistic media.

Jess was nice enough to answer some questions I posed to her about her views on social media. Read on . . .

~ ~ ~

How did you begin using social media in your professional efforts?

During my career as a journalist I used blogs to search for leads and find story contacts. That’s how I initially experienced the power of the social web — and the immediate sharing of opinions and information. The disappearance of the traditional news cycle and the move to news shared at the speed of thumbs. We began utilizing social media in earnest in our public relations efforts when we launched our agency a year ago. As communication professionals, I feel it is our duty to stay at the forefront of where the industry is moving. If you don’t engage and exist in the social media space yourself, you are not able to advise clients and develop strategy. I was fortunate to have a group of early-adopter tech friends who shared the KoolAid with me.

What do you and your firm use the social media for?

We utilize social media in three main ways: to promote our company through establishing and maintaining an online presence for us as individuals and therefore our agency; to monitor for industry trends and breaking news that provides opportunity or potential crisis for our clients; and to grow the reach and reputation of our clients through engaging in the social web.

All of our staff maintain Twitter, Facebook, and LinkedIn profiles, and several of us blog regularly.

Whether for yourselves or on behalf of your clients, what steps do you take to monitor social media conversations?

I have tried out several tools in Beta as they emerged — Twitter is great for giving you links and feedback on the latest tools available. Right now my favorites are TweetDeck as a platform for monitoring conversations. I have it set up to monitor for several client names and trends, and it has enabled me to place three stories/reviews for a technology client by tracking conversations and responding immediately. A colleague — Tac Anderson at New Comm Biz — turned me onto TechRigy, which is the latest software solution to monitor and measure social media. We’ve been using it for several weeks for a Fortune 50 company and a technology client and have been impressed with the measurement — sentiment analysis, trend comparisons, geographic analysis, theme detection, authority measurement, demographic, and geographic analysis. I also love my Google Reader — it is one of the key tools I encourage clients to utilize when I’m asked “How do you have time for it all?” I subscribe to industry blogs for PR/Marketing to keep up on the latest trends and industry blogs for clients to look for opportunities, and input my Google Alerts into my Reader as well.

You’ve been in journalism and P.R. long enough to see lots of evolution as first the Internet and now the social media have grown. What has changed for P.R. pros because of social media, and what has stayed the same?

What has changed is the transparency and PR’s so-called gatekeeper role. No longer can PR pros consider themselves as gatekeepers. The gates are open. Conversations are occurring whether or not you (or the organization you represent) chose to be involved. Social media has broken down the walls. In a way - I believe it has brought PR back to its true core. It is about communication and relationships again. Now it is about acting as a conduit for information. Finding the right channels to reach the people who want to hear your story. It’s also made relationships even stronger — bridged the gap in some ways between media and PR people. Made each other seem more human. I don’t believe that in our profession you can have a professional social media profile and a personal one — they are one and the same. Social media has made us all human again and able to communicate in a way that is intensely more personal and more meaningful.

Also — it has forced a lot of PR people out of their comfort zone. For the first time since the inception of the Internet, PR people have been forced to either get on the “bus” or get left behind in the dirt. Grow and evolve or go extinct.

About a year ago I got to visit Boise for the first time in 20+ years, and I was impressed with how cosmopolitan it seemed. That said, it hardly has the reputation of Silicon Valley or Austin for technology adoption. What’s it like being a social-media enthusiast where you live?

Hey! Entrepreneur.com thinks we’re the next Silicon Valley! Seriously, I don’t think you have to be a cosmopolitan-techno-hotbed in order to have a vibrant social media community. While Boise may be small, it is the very Word of Mouth culture that exists in communities like Boise that supports social media. There is a lack of pretense that makes the social media experience in Boise more approachable than it may be in larger cities.

And the beauty of social media is that, unlike other networking, there are no geographic boundaries. We are all on a virtual level playing field where my thoughts and opinions hold the same weight as those [of someone] in a larger city. It is about the quality of the conversation — not the size of the population. We handle clients and integrate social media strategies beyond our Idaho borders. I don’t have to be in a certain city to engage in conversations, initiate dialogue, monitor for a client’s share of voice, and craft a strategy to grow it — the world is now without borders. Those professionals engaging every day are the ones who will succeed — regardless of where they are.

~ ~ ~

Thanks to Jess for sharing her thoughts. Be sure to check out her blog!

Plain as the nose on your face.

The question comes to mind after reading these lines from Merlin Mann:

Because, this is what your new Elvis looks like, gang. And, eventually somebody will figure out (and publicly admit) that Kutiman, and any number of his peers on the “To-Sue” list, should be passed from Legal down to A&R.

Everybody knows the business has moved from legal to binary files. The question now is how much more lead time old media companies and other IP-obsessives can afford to burn by pretending it’s otherwise.

It’s hard to change your ways. It’s hard culturally, socially, and neurologically.

But you’ve got to do it if you want to get better outcomes.

What’s obvious to you by now? Are you acting on it?

~

Related:

• Being wrong.
• Western Union and record labels.
  

~

Photo by Dave Scelfo, used under a CC-Share Alike license.

That’s the question that comes to mind after reading this op-ed from the Dallas Morning News:

John Chachas: 4 steps to stave off the death of newspapers

Chachas, an executive at Lazard rather than a newspaperman, argues that the U.S. federal government’s regulations governing local media — prohibiting, for instance, the cross-ownership of a newspaper and a television station in the same city — are outmoded, especially considering how Internet sources have changed the media consumption habits of so many Americans.

I read the piece after my colleague Chris Barton pointed me to it in the comments of this morning’s post about the potential bankruptcy of Sirius. Here’s a key passage from the article:

Antiquated anti-trust laws have been extended to apply not just to the local concentration of economic power but also to how many “voices” there may be in a defined market. Yet somehow voices refer only to print. Regulators fail to consider the Internet or even cable TV as local competition.

. . . It is as if regulators went to sleep during the Eisenhower administration and woke up staring blankly at an iPhone.

This is apt — although I would add that many local newspapers managed to perform exactly the same Rip Van Winkle act. Still, absurdities do abound. Chachas provides a telling contrast:

Chrysler and GM are in merger discussions, but somehow the Minneapolis Star-Tribune and the St. Paul Pioneer Press must sign a consent decree agreeing to not combine.

One wonders if there will BE any such thing as a “local media market” in ten years, in the Twin Cities or anywhere else. Possibly by the time the regulators get a clear view of what’s going on, the point will be moot.

Broader applications

As a coda, one last reflection: the Internet — or, really, the pervasion the Internet has achieved during this decade — continues to render moot all sorts of formerly meaningful “markets.” Consider, off the top of my head, . . .

• . . . the way that online job-hunting tools have made it possible for many knowledge workers to create a “job market of one” for themselves;
• . . . the way that Amazon — especially Amazon Prime — undermines all sorts of local stores (not just bookstores);
• . . . Apple/iTunes/the music business. (This ground is well-traveled: insert your own analysis here.)

What else would you add to this list?

Bigger question:

What does a “market” mean in the age of the Internet?

~

Image by Andy Eick, used under a Creative Commons license.