Convergence and the birth of a new AT&T

The proposed AT&T – Bellsouth merger signals the unfreezing of the US telecommunications industry and is likely to send seismic waves through the industry. If the merger goes through, the erstwhile baby bells will be reduced to three major players: AT&T, Verizon and Qwest. Further, there is some talk of Verizon making a move on Qwest and reducing the sector to a duopoly. The AT&T merger makes sense when you consider existing industry conditions.
Cable industries with their triple-play (TV, internet broadband, phone) offerings have stolen share from the traditional baby bells and consolidation might help AT&T cope with this convergence threat better. The new entity plans to apply the same brand across all its offerings and this should help reduce ad spend. The increased consumer base should also help when it comes to investment and roll-out  of new technologies such as IPTV. Scale should also help AT&T in dealing with its suppliers. The regulatory environment these days also seems to be favorable to such a move even though questions of how this merger would affect the net-neutrality issue persist. This merger might bring benefits to residential customers in the form of lower prices and increased choices but business consumers might suffer from a reduction in choices of service providers. It will be interesting to see how the cable companies and Verizon respond to this merger.

General Motors: Cost, willingness to pay, and bankruptcy

Much has been said about GM’s competitive disadvantage vis-a’-vis Japanese carmakers when it comes to legacy pension and healthcare costs. These higher costs erode margins and lower earnings for GM shareholders. What hasn’t gotten as much attention, at least in the mainstream media, is the other side of the equation in the creation of shareholder value –  the consumer willingness to pay. This article from Newsweek claims that GM’s deficit in consumer willingness to pay in comparison with Toyota’s is as high as $1500 per car. It’s obvious GM has a lot of work to do in changing consumer perceptions in addition to tackling its structural cost issues. The obvious question then is – can GM pull it off or is it sliding towards bankruptcy? A recent Fortune article addressed GM’s predicament in stark and somewhat pessimistic detail. I’m rooting for GM and for the state of Michigan. Rick Wagoner and his team certainly have a helluva challenge ahead of them.

Is the video game software industry in trouble?

Newspapers these days are choc-a-bloc with articles hyping video games and their impact on pop culture; and the global hardware, software and accessories sales for video games reached $10.5 Billion in 2005. It is then somewhat surprising to note that video game makers such as Electronic Arts, Activision and Atari have all recently missed their earnings and announced layoffs. What exactly ails the video game industry? Mike Musgrove through this article in the Washington Post posits that the video game console upgrade cycle has much to do with these woes.
The three major video game console makers are in the process of upgrading their hardware and this has disrupted the industry through uncertainty. While Microsoft has already launched their next-generation Xbox 360 console, shortages have depressed video game sales. The complements for video games (high definition TVs, consoles) keep getting more expensive leaving little value for game makers to appropriate. To make matters worse, while the cost of game development doubles with every iteration of consoles, the consumer willingness to pay hasn’t move beyond the $50 price point. The video game industry also relies on a few blockbuster titles to make up the development costs of all the duds and this need for blockbusters has driven the proliferation of branded (Tiger Woods, Star Wars, Tony Hawk) games. The video game makers are hoping that increased scale in the form of new buyers worldwide will bail them out though even that will do little to address the other structural issues.

New research on quantifying brand equity

While looking up the brand value of J&J for a class project, I came across this article in the Stanford GSB Knowledgebase about a newly developed model for quantifying brand equity. Prof. Srinivasan and his two collaborators have developed a mathematical model and a market research method that enables managers to calculate how much the company will earn if they invest in different kinds of branding activities.

Prof. Srinivasan and his collaborators first developed an operational definition for brand equity and identified its three sources – 1. Brand awareness, 2. Consumer perception, and 3. Cachet of owning a particular brand. The researchers then applied their model to the cellphone market in Korea and calculated that Samsung had earned $127MM per year from brand equity. Models such as these might finally help reveal what half of advertising really adds value.

Real estate brokers face new threat from banks

Looks like real-estate brokers just can’t catch a break these days. This article from Marketwatch details how in addition to facing competition from online and discount brokerage firms (my earlier post here), real-estate brokers are now facing a new threat in the form of banks entering their profitable realm. The debate centres around the interpretation of the Gramm-Leach-Bliley act that was passed in 1999 and pits the National Association of Realtors (NAR) against the American Bankers Association (ABA). The ABA contends that opening up the real-estate market to banks will lead to lower consumer costs while the NAR counters that doing so would represent an irreconcilable conflict of interest for the banks and would violate the original act. This promises to be a lobbying battle royale as both groups have many friends in Congress. Interestingly, the two adversaries in this battle are on the same side when it comes to fighting Wal-Mart’s application for a loan-company charter.

Lessons from Japan in energy conservation

I came across this fascinating and thought-provoking article in the Washington Post about efforts underway in Japan to reduce its energy consumption. The efforts were born from pure economic need as Japan doesn’t have any significant domestic sources of fuel and also from a deep sense of national duty and pride.
The following statistics from the article just blew me away:

1. The ‘Warm Biz’ campaign saved 70 million kilowatts of power from June through August of 2005. That is enough to power a small city for a month.

2. Japan now imports 16% less oil than it did in 1973 even though the economy has since more than doubled.

3. Japan accounts for 48% of the world solar power generation.

4. Nippon steel has reduced its dependency on oil by 85% since 1974 and oil now accounts for only 10% of the energy used for its furnaces.
The article shows you how well a populace responds when a national problem is framed in an appropriate manner. Also, if Japan has done so well in reducing its energy utilization, one has to believe that more can be done here in the US.

As far as energy efficient appliances go, is the consumer willingness to pay in the US as high as it is in Japan? The success of the Prius leads me to believe that there is definitely a section of the US market that is interested in these appliances and peripherals. Though again since appliances don’t make as much of a public statement as cars, they may not prove to be as popular. I can’t imagine Cameron Diaz walking around with an energy efficient blender for the paparazzi to go crazy over.

MTV turns 25: Can it stay relevant?

BusinessWeek has a long but engrossing article on the measures that Judy McGrath, the new CEO of MTV, is taking to keep the channel cool and relevant. MTV’s target audience increasingly satiates its voracious appetite for media on the web and via cellphones in addition to TV sets. This proliferation of new distribution channels threatens MTV’s established business model of content delivery through cable; especially as it receives 60% of its revenues from advertisers.

McGrath is highly focused on understanding her customers and is referred to as ‘a 16 year old boy in an adults body’. She’s embracing new media and leading initiatives such as the on-demand streaming of videos to college campuses. MTV has also begun offering its content through iTunes, formed a partnership with Microsoft, and is launching a high-definition channel. MTV networks recent split-off from Viacom may also help it be more nimble and reactive to the market. There are many other businesses in the media and the technology sector that are facing challenges similar to the ones being faced by MTV and the lessons learned here could be applied widely. A lesson that’s readily apparent is of harnessing new technologies and cannibalizing your own business before someone else does. MKT 601, anyone?

The Real Estate industry unfreezes: Dell, Expedia…Zillow?

The Internet has played a major role in disintermediation in industries ranging from travel to personal computers; driving higher efficiencies and lower costs for consumers. All signs point to the real estate business being next in line for a similar seismic change. As things stand today, real estate agents affiliated with the National Association of Realtors (NAR) have exclusive access to the Multiple Listing Service (MLS) – the most comprehensive nationwide database of house listings. Real estate agents take full advantage of this information asymmetry and charge healthy margins especially in a buoyant market.

Two new online services that increase access to listing information and make the process of buying and selling houses on the web easier should serve a warning notice to real estate agents and provide an impetus to further differentiate their offerings. Zillow and Redfin are both based in Seattle (yay!) and promise to shake up the real estate industry. Zillow launched officially yesterday and its servers crashed from the surging traffic – an early measure of how eagerly consumers await such a service. Zillow still has some work to do in terms of the accuracy and the breadth of the information that it provides especially since it does not have access to the MLS. But, if the case that the Justice department has brought against the NAR runs its course and opens up access to this database, the real estate business may truly unfreeze from a disruptive technology. Viva web! More on this here, here, and here.

Super Bowl ads: Does all that hoopla pay off?

As expected there’s a lot of buzz in the press today (here, here and here) about the Super Bowl commercials. Jovina also blogged about this today here. Of course, the $100 Million question is whether all this marketing investment pays off for the companies. This article from last year from Knowledge@Wharton is still applicable and covers most of the strategy and marketing bases in its analysis. Two bits from the article stood out for me. First, the substantial investment makes sense only if your products have national reach (scale anyone?) and you have the profit and therefore the advertising budget to afford it. Second, an ad needs to be just clever enough and no more than needed to attract consumer’s attention. If the ads are funnier or flashier than needed then they may take away from the underlying product.

You can watch all the commercials on-line here. My favorite commercial? The Fed Ex Dinosaur by a hair.

Cellphones as a means of computing for the poor of the world

I like Microsoft’s idea of promoting cellphones over laptops as a computing medium in the developing world. Cellphones provide substantial advantages over conventional laptops in cost, internet connectivity, learning curve and availability. Also, as cell phone penetration in India has shown, infrastructure issues such as an intermittent power supply are not that big a drawback. In fact on my last visit to India, I saw cellphones being used by everyone from bhajiwalas (the neighborhood vegetable vendor) to cobblers. I haven’t read details about Microsoft’s plan but hope that they involve entrepreneurs in Asia and Africa. I’m not too enthused with the idea of governments. especially those in Africa, running this program. I’m now looking for some information on the web about what computing applications delivered through cellphones would be ideal for the developing world.

The MIT Technology Review also has more on this topic here.