Stephen Elop’s fiery eloquence leaves Nokia looking a burnt-out case

February 10, 2011

I have no idea whether Nokia chief executive Stephen Elop’s announcement tomorrow of a pact with Microsoft will involve the ditching of Symbian mobile operating software in favour of Windows Phone 7.

But one thing I do predict is that nowhere will eloquent Elop’s now notorious staff memo make an appearance in Lucy Kellaway’s much feted annual FT corporate bullshit awards.

There was no elephant to be seen in any room, no going forward (that part presumably comes tomorrow), and no low-hanging fruit whatsoever.

Instead we had a terse, carefully constructed piece of prose that is a classic of its kind. It spared no illusion, but was rich in an almost poetic imagery that took in the Piper Alpha oil rig disaster and made a nod to ‘the boy on the burning deck’ along the way. Not the sort of thing you get from CEOs every day, is it? And, for that reason – and others  as well – I suspect Elop’s name will be hallowed in business schools for years to come even if what he does with the Nokia brand is not.

There are many things to be admired in “Burning Platform” (which appears in a literal sense to be an allusion to Symbian), but I would single out Elop’s searing indictment of Nokia’s faulty marketing strategy as the most notable. It’s the sort of detached corporate insight that only an outsider could bring – although most would have kept it to themselves and their boards:

We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.

Elop’s image of a desperate man plunging 30 meters into icy waters to escape the burning oil rig may be unique, but it is not without parallel. The Wall Street Journal has helpfully assembled a clutch of similar memos from high profile CEOs attempting to ride out a corporate crisis. They were equally embattled, if not equally eloquent. There’s the  Microsoft “Internet Tidal Wave” memo in 1995, in which Bill Gates highlights the web-threat to PCs; the “Commoditization of the Starbucks Experience” call to arms by chairman Howard Schulz in 2007; the 2006 Yahoo Peanut Butter Manifesto, in which an executive pointed out the internet company was spreading itself too thinly to survive; and John Pluthero’s morale boosting memo to Cable & Wireless staff, roundly condemning “an underperforming business in a crappy industry.”

I’m not sure they’ve all had the fully desired effect. I wonder if Elop will be any more successful?

UPDATE 11/2/11: So, Elop is going for the Windows Phone 7 deal after all. He’s chucking Nokia’s upmarket MeeGo specification, but keeping the mid-market Symbian operating software – for now. Early traders on the Helsinki stock exchange seem to agree with the somewhat spiteful verdict of a Google executive, perhaps smarting from Android’s exclusion from the Nokia picture: two turkeys do not make an eagle. They marked down Nokia shares a savage 10%. But it’s early days. Both Microsoft and Nokia, though on the backfoot, have huge latent market power. And we should not underestimate the willingness of the mobile operators to embrace a wider spectrum of competition within the smartphone sector, which will have the desirable byproduct of buttressing their own market position against those impudent upstarts Apple and Google.

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Omnicom close to $100m deal with Communispace

December 13, 2010

Omnicom is poised to clinch a $100m deal to acquire eCRM and research company Communispace, according to sources in a position to know.

Communispace specialises in creating communities online – it claims to have over 350 in operation. It can mine and shape sophisticated customer database material for large, blue-chip clients – which often find difficulty in establishing the actionable status of “chatter” in the social media sphere. Communispace clients include Coca-Cola, Campbells, Colgate, Hasbro, Heinz, HP, Microsoft, Pepsi and Unilever.

Communispace was set up in 1999 by current president and chief executive officer Diane Hessan, a Harvard MBA. It is based near Boston, Massachusetts, but has global reach, with offices in London; Genoa, Italy; and in the Asia Pacific region, operating out of Sydney, Australia. Maria Rapp, a founder of Communispace, is managing director of European operations.

Communispace is 43% owned by California-based Dominion Ventures Inc. A further 13% is in the hands of Boston-based Women’s Growth Capital Fund. Senior staff appear to own the rest.

It is easy to see why Omnicom would be interested in buying such a company, but not why it should be paying so high a price –  if financial data that has come my way is any guide. Communispace’s 2010 gross revenue is expected to be $47m and profit before tax, $6.3m: which suggests an already high price/earnings multiple of about 16. Additionally, however, just under 30% of that profit-before-tax figure is expected to be siphoned into an options bonus scheme for senior Communispace management, which would effectively make the multiple soar well into the 20s. It has rightly been pointed out that Omnicom is not normally known for its financial extravagance. Nor has it been particularly active on the acquisitions front recently. There must be a pretty important piece of mutual business at stake to justify paying Communispace’s $100m asking price.

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Publicis’ sweetheart ad deal with Google turns sour after kickback allegations

November 25, 2010

When is an agency kickback not a kickback? When it’s a strategic partnership with Google – according to Kurt Unkel, senior vice-president at Publicis Groupe digital arm VivaKi.

Google and Vivaki have found themselves in the eye of a hurricane, thanks to an exposé published by the respected online journal TechCrunch. It sheds disturbing light on the highly incestuous relationship between the internet giant and agency group, with particular reference to their collaborative display advertising operations.

The technicalities are complex, jargon-ridden and difficult for outsiders to understand, involving as they do the secretive workings of so-called agency “trading desks” and “demand side platforms” (DSPs). But at heart the issue is simple. It’s exactly the same one aired in one of my recent posts on a historic kickback scandal at Grey Advertising. It’s about playing the agency client for a mug, possibly because the client in question is indifferent, but more likely because he or she hasn’t the first idea about what is going on. Or, as one anonymous Publicis employee quoted in the TechCrunch piece bluntly puts it: “Our clients are so clueless it is a joke.”

So how does the scam, if that’s what it is, actually work? Google is desperate to prove that it is not a one-trick pony, relying pretty exclusively on search advertising revenue. It has made considerable inroads into display, which now accounts for $2.5bn a year revenue according to the company itself. Some of this comes from its own sites, which include YouTube, but quite a lot is also generated via special units, the DSPs mentioned above, which are attached to all the big agency network groups – Omnicom, WPP and Interpublic as much as Publicis. According to one source quoted by TechCrunch, these DSPs already handle 10% of online ad spending but, such is their power, they could handle up to half in a few years’ time.

The issue is not whether money changes hands between Google and Publicis to boost Google’s market share. An explicit bribe would be illegal, not least because the financial inducement would not have been remitted to the ultimate paymaster, the advertising client. Rather, what seems to be going on are a series of non-monetary inducements offered by Google to improve agency performance. These, according to TechCrunch, include investment in the agency trading platform, co-marketing and training.

Google does not deny this is what is happening with Publicis. That in itself is serious enough, because it hints at abuse of market power, which could in time attract the attention of the competition regulator. In a nutshell, is Google using profit gained from its search operation to distort the display market?

But the implications are even more serious for Publicis, which depends on digital advertising revenue to sustain its industry-beating profit margins, of which we have been hearing so much from Groupe chief Maurice Lévy of late. According to a Publicis secret squirrel quoted in the piece, Publicis will run $1bn of advertising through Google this year, most search but about $200m display. To put this figure in context, digital was nearly 30% of Publicis’  Q3 €1.3bn revenues. And the rate at which digital revenues are growing – 28% in North America, which is the hub of global activity – is much higher than the industry average of 17%. Just to round off the point, there is an incestuous relationship between Google and VivaKi’s DSP technology: the technology is effectively licensed from Google.

If that’s the case, the not unreasonable question arises: are media planners at VivaKi acting in the best interests of clients when they allocate client funds, or the best interests of their employer?

I should point out at this stage that VivaKi does do business with display ad exchanges other than Google’s DoubleClick; for instance Yahoo’s Right Media. It also has a sweetheart display advertising deal with Microsoft, struck as a clinching quid pro quo during the Razorfish acquisition last year.

Nor does Google have an exclusive partnership with Publicis. It has a relationship with all the major advertising holding companies and a similarly structured deal to the Publicis one with Omnicom.

Whichever way you look at it, however, this exposé is a wake-up call for clients. Advertisers really need to pay a lot more attention to how their money is being spent.

POSTSCRIPT: Troubles, they say, always come in threes. To add to Publicis’ Google woes, there is a still-breaking corruption scandal in its China media buying operation, plus fresh news that Matthew Freud’s high profile PR subsidiary is plotting defection. For more information on this last, see what my old chum Stephen Foster has to say over at More About Advertising.

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PD James Thompson onslaught kills off BBC private sector marketing experiment

October 13, 2010

Spare a thought for BBC director of marketing, communications and audience Sharon Baylay, who leaves next year – and not entirely of her own volition.

The axing of her position is a monument to the ineptitude of director-general Mark Thompson in front of a microphone. It was preordained from the moment that he allowed himself to be kebabed on the skewer of a little old lady’s forensic interviewing technique.

Cast your mind back to December 31st, 2009. PD James, the little old lady in question, was guest-editing the Today programme. I don’t know whether Thompson had a premonition he was going to be that morning’s toast. He certainly acted like a fox lamped by headlights when the crimewriter and former BBC governor moved in for the kill.

In her cross-wires were the 37-plus BBC employees who – inexplicably in her view – earned more than the prime minister. Thompson attempted to bat it off by justifying the salary of then BBC1 controller Jay Hunt, with her £1bn budget. But James was having none of this. She was not talking of Hunt and her kind, she said. Who were all these over-salaried bureaucrats with not a shred of creativity in their make-up? And in particular, this clan of clones with marketing and communications in their title, paid for by the taxpayer? Why, the litany is endless: there’s a director of marketing, communications and audiences on £300,000, and a director of communications on £225,000 – doesn’t he do what the other person’s supposed to do? Then there’s a director of brand and planning, a director of audiences… And so on. It begins to sound like an extract from the script of Yes Minister, only it’s for real.

At first sight, Baylay seems an identikit fit for an “over-salaried” bureaucrat. Her basic salary is £310,000 and her pedigree is not the BBC but Microsoft, where for 15 years she played a competent but fairly faceless role in a number of managerial positions, culminating in general manager of online services. But that’s to look at the appointment, which happened in May 2009, in the wrong light.

Baylay is less a techno-mandarin than the last of series of expensive imports from the private sector who have swelled the power and importance of the marketing function within the BBC. The first marketing director in any meaningful sense was Sue Farr, who had a background weighted more towards advertising than brand management. But that was no bad thing: in those days marketing, which was much more lowly in the BBC hierarchy than it is today, was largely about on-air ads, such as Perfect Day. Farr had another, unofficial, role. She was the publicly acceptable face of director-general John Birt, a skilful if robotic strategist and not someone you’d particularly want to invite to dinner.

Farr came a cropper with the advent of Greg Dyke as Birt’s successor in 2000. Dyke, probably the most successful and certainly the most popular d-g in recent times, suffered from no such interpersonal skill inhibitions as his predecessor. He wanted a “real” marketer who would oversee not only the BBC’s content and PR operations, but be at the heart of its audience research as well. And he eventually alighted on Andy Duncan, with his classic fmcg background at Unilever.

The early success of Duncan, reflected in the take-off of Freeview and his subsequent promotion to chief executive of Channel 4, set a precedent. It was reinforced by his successor, Tim Davie – once again equipped with impeccable fmcg credentials, this time Pepsi-bred. The difference between Davie – who moved on to become the BBC’s director of audio and music – and his successor Baylay really amounts to sector emphasis. At a time when media is ever more interactive and internet-driven, it made sense to appoint someone steeped in digital experience. And where better to look than Microsoft, which had been closely involved with the BBC in the development of the iPlayer?

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Dentsu launches $600m bid for AKQA

September 16, 2010

Word reaches me that Dentsu, Japan’s largest advertising network, has launched a pre-emptive $600m bid for digital independent AKQA.

No discourtesy to AKQA – which is well-respected  – but that sounds an awful lot of money  – even for an agency that is renowned for setting an impossible price on its independence. And it is: twice as much as it is worth gauged by conventional financial metrics. But then, Dentsu is desperate to buy digital presence in the West – and the USA in particular – at almost any price. And AKQA, which boasts an enviable blue-chip client list including McDonald’s, Coca-Cola, Unilever, Nike, Visa and Fiat, is one of a fast-shrinking number of desirable targets.

Readers of this blog will recall Dentsu’s bitter duel with its supposed ally Publicis Groupe to acquire Razorfish last year. Publicis eventually trumped Dentsu, which had offered an extraordinary $700m, with a lower bid of $530m; but then Publicis had an inside track with the owner, Microsoft, involving a favourable ad deal.

Dentsu eventually scored when its US unit acquired Innovation Interactive, the parent of digital ad shop 360i, at the beginning of the year. It also had its sights on search and social media specialist iCrossing, but that was snapped up at the beginning of the summer by the Hearst Corporation.

AKQA – founded in 1995 by Ajaz Ahmed, who remains its chairman – is a much bigger prize. Headquartered in San Francisco, it has outposts in London, New York, Washington DC, Shanghai, Berlin and Amsterdam; and employs over 800 people.

I’m told that Ahmed and chief executive Tom Bedecarré are against selling out to Dentsu. But the inconvenient truth is that their company has been majority-owned by private equity group General Atlantic for the past three years. GA calls the shots, and cannot ignore such a salivating offer…

I’ll keep you posted.

UPDATE, September 23rd: WPP bidding for AKQA, eh? Not at that price it won’t be. The rumour was described by sources close to WPP as “rubbish”. To prove the point, Campaign and Media Week – which gave credence to the story – have withdrawn it.

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The conundrum at the core of Apple

July 21, 2010

Look on my works, ye mighty, and despair! Apple’s awesome quarterly results have made ‘Antennagate’ – the obscure controversy surrounding iPhone 4′s wraparound aerial – a storm in a teacup.

Sales up 61% to $15.7bn, $1bn ahead of expectations; earnings up 77% to $3.25bn; all product categories performing well, most breaking new sales records: these are the kind of things that Wall Street wants to hear. And which have enabled Apple – having lost ground to Microsoft after the iPhone  crisis ‘press conference’ last week caused a share-price dip – to recover its status as the world’s largest tech company, estimated by market capitalisation.

Most gratifying for the company will have been the success of the iPad tablet computer, launched during this reporting period. With 3.27 million units sold (worth $2bn in sales), Apple has once and for all disposed of the vociferous nay-sayers, who claimed it was launching into a non-existent market niche.

And yet, and yet. Quarterly figures, however good, are the rear-view mirror. The Antennagate controversy has revealed to the wider world a worrying chink in Apple’s corporate armour. Steve Jobs, the wayward business genius at the heart of Apple’s success is also its Achilles’ heel. “Control freak” does not do justice to his paranoia about the competition or his obsessive secrecy. Apple is a cutting-edge corporation powered by an old-fashioned command-and-control culture. One which proved pitifully inadequate in dealing with adversity.

If you haven’t already, read David Jones’ post on Pitch: ‘Why Apple needs some social media duct tape’. The light touch belies a serious purpose. For all its immersion in the white heat of consumer technology, Apple simply doesn’t “get” 24/7 media.

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Will Razorfish make Publicis cutting edge?

August 11, 2009

RazorfishPublicis Groupe may have dramatically trumped Dentsu’s higher offer to acquire digital and interactive agency Razorfish, but has it cut a good deal  ?

I ask the question because WPP Group, the third contender in second-round negotiations with Microsoft, has played a curiously muted role in this contest. That, to say the least, is unusual. Normally a locking of horns between WPP and Publicis is enlivened by the electric personal animosity between their principals, Sir Martin Sorrell and Maurice Levy. It’s a sore point with Levy that Sorrell has often outgunned him, most conspicuously in the hostile takeover bids for Y&R, Cordiant and Grey. But there was no war of words this time. WPP allowed itself to be meekly outbid.  Why?

The answer has nothing to do with the strategic value of the acquisition, which is indisputable. Razorfish has, by common consent, considerable scale and skills in digital and interactive, particularly in the US market. A recent AdAge survey ranked its revenue behind only Publicis-owned Digitas in 2008. It has over 2,000 employees and a raft of blue-chip clients which include Kraft, Ford, Visa, McDonald’s and AT&T. Moreover, while admittedly US-centric, it has valuable outposts in London, Beijing, Shanghai, Hong Kong, Tokyo and Sydney.

levy

Levy: Digital king?

Fitting Razorfish into Publicis’ VivaKi unit will undoubtedly help it to build that global presence, not to mention its client list. But the acquisition is a big coup for Publicis, too. As David Kenny, managing partner of of VivaKi, has pointed out, more than half of his division’s revenues will now come from digital for the first time – and Publicis itself will be able to boast that, with 25% of its income derived from that same source, it will have more digital assets than any other advertising holding company.

“It gets us a culture that’s more savvy about technology and innovation, more nimble and more connected to Silicon Valley. We’re very connected to Microsoft and very connected to Google – the big platforms underneath all this,” he adds.

So far, Publicis has been much more aligned to Google’s DoubleClick adserver platform. Now, by embracing Microsoft’s Atlas platform, via Razorfish, it has redressed the balance; not unimportant given that Microsoft has bolstered its competitive position vis-a-vis Google with the Yahoo! search deal.

So, a strategic snip, bought in the midst of a recession and under the very nose of WPP into the bargain?  Well, not necessarily. As with any deal, the devil is in the detail. In this case, the detail is what allowed Publicis’ $530m cash-and-shares offer to best Dentsu’s $700m one. Superficially, it comes down to the fact that Dentsu has almost no media buying presence in North America, whereas Publicis has a lot. Microsoft made it clear it wanted a conditional deal whereby it could exploit that very buying power – and it has duly got its pound of flesh. Under the terms of the agreement, the two companies Microsoft and Publicis have signed up to a five-year alliance that will allow Publicis-owned agencies to buy display and search advertising from Microsoft on supposedly favourable terms. But here’s the rub: the discounts only kick in above a certain volume of business. I hear that Publicis will have to commit $3bn-worth of clients’ business over those five years to make the deal work, and that there will be financial penalties if it does not. I wonder what Publicis clients P&G, Coca-Cola and General Motors think of that.

This may be one reason why WPP shied away from a more aggressive bid. Another seems to be that the Razorfish profit and loss figures simply do not add up – and that it will actually make a loss this fiscal year.

Even so, Publicis has scored a considerable propaganda triumph with its acquisition.

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Schmidt Apple move means frenemy is now the enemy

August 4, 2009

Eric SchmidtSo, Google chairman and chief executive officer Eric Schmidt is stepping down as a non-executive director of Apple. What took them so long to get rid of him?

Actually, the smarter question is: why was he allowed to assume the position in the first place, back in August 2006?

The conventional answer is that friendship with Apple ceo Steve Jobs mutated into an alliance of interest against the overweening power of Microsoft. The non-exec appointment set the seal on a pincer movement, Apple blunting Microsoft’s forays into mobile operating systems, and Google undermining it on the search and internet open-source applications front.

Tactically, the alliance has had some success. Strategically, it was doomed from the start, because many of the weapons developed by Google in its war on Microsoft also pose a second-degree threat to Apple. Google’s Chrome browser, for example, conflicts with Apple’s Safari, and was under development even before Schmidt took up his Apple appointment.

The balancing act has become progressively more difficult with Google’s launch of a mobile operating system – Android – which challenges the iPhone as well as Mobile Windows, and most recently its introduction of a rival PC operating system, Chrome OS. The last straw on the camel’s back, it transpires, was Apple blocking a version of Google’s Voice application for its iPhone. That, and Federal regulators snooping around the conflict of interest issue.

The problem can be more simply expressed, however. Tribally speaking, Apple is closer to its deadly enemy Microsoft than it is to Google. For Apple and Microsoft, the principle of the intelligent, remote personal computer is fundamental to their business thinking. Google, on the other hand, is all about internet server-based technology and open-source, as opposed to proprietary, software applications.

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Publicis and Dentsu cut up nasty over Razorfish acquisition

July 29, 2009

RazorfishWord reaches me that Razorfish, the digital interactive-cum-media placement agency being disposed of by Microsoft, is causing controversy as the bidding enters the second and final round.

Microsoft originally bought Razorfish as part of its $6bn acquisition of aQuantive in 2007, but clearly feels an agency of this size conflicts too much with its ad sales operation. The idea is to offload it, via Morgan Stanley, onto one of the big agency groups for well over $400m, plus  a commercial deal involving Microsoft proprietary advertising technology and a commitment to buy ad space across Microsoft web properties such as Bing. Conditional selling, you might say.

Interpublic and Omnicom have fallen by the wayside, which leaves WPP, Publicis Groupe and Dentsu in contention.

Publicis emerged as an early favourite, despite the fact that its platform technology (via Double Click) is more closely aligned to Google than Microsoft’s Atlas. So it was somewhat miffed to discover that its ally Dentsu – which holds a strategic stake in Publicis – has comprehensively outbid it.

But the $700m rumoured to be on the table may not be the knockout bid it appears. The trouble is Dentsu doesn’t have the US presence to do an appealing commercial deal. Which is where, in other circumstances, its ally might have come in…

Experts think that $700m is over the top in current market conditions, a symptom of Dentsu’s desperation to catch up. Maybe Microsoft should take the money and forget the side-deal. But then again, that side-deal has become more important now Microsoft is acquiring Yahoo!’s search business.

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Will Wal-Mart price-war shatter Windows?

July 27, 2009

imagesWal-Mart, judged by its sales, would be the 18th largest economy in the world. So, when the global retailer decides to do something, it usually moves markets.

Right now, analysts are pondering what impact its decision to stimulate a price-war in the laptop sector will have on personal computer manufacturers reeling from recession.

The PC community, largely represented by Microsoft, which produces Windows operating software, Intel, the chip-maker, and Hewlett-Packard and Dell, which manufacture the computers, is already under siege from an influx of low-cost, lightweight netbooks, mostly hailing from Taiwanese manufacturers such as Acer and Asustek.

If Wal-Mart carries out its threat of selling an HP laptop running Windows Vista with 3 gigabytes of memory and a 160-gigabyte hard drive for under $300 (£182), then that spells trouble indeed for PC margins. Mighty Microsoft, for example, has just reported a loss in its quarterly financial results – its first consecutive loss ever. And that’s before the Wal-Mart price promotion kicks in.

Believe it or not, the Wal-Mart threat and recession may only be mooncast shadows compared with another problem rocking the PC business. More in this week’s magazine column.

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