Boston Globe and Snapchat

Two seemingly unrelated stories over the summer of 2013 should seriously wake you up.

At face value, it wouldn’t appear these events are connected but pause and think about them and realize the implications.

The Boston Globe was founded in 1872. It is the dominant newspaper in America’s oldest city with nearly 3x the circulation of its rival. There are apartments in Manhattan for more than the price Mr. Henry recently acquired The Globe for from the New York Times. Think about this – it was owned by the New York Times, arguably the single most well known newspaper company in the world, and it couldn’t survive. Oh, and they paid over a billion dollars for it in 1993.

snapchatThe Snapchat ghost is laughing at you.

Meanwhile, Snapchat started as a student project at Stanford at the end of 2011. Its creators, Spiegel and Murray, were basically dismissed by even fellow students for the notion of a social network based on impermanent pictures.

(Background on Snapchat: users take pictures that last for between one and ten seconds on the recipient’s phone).

The average user of Snapchat is 13 – 23 years old and the majority of “Snaps” are selfies, where the user takes a picture of him or herself. It’s no secret that a healthy percentage of “Snaps” are not safe for work, as a subtle description. Within one year, one billion photos had been shared with twenty million photos shared per day. While Snapchat doesn’t reveal its user base, its users are now sharing 200 million pictures a day. Until early 2013, Snapchat was still operating out of its founder’s father’s house and had less than ten employees, including the founders.

The amount of money Snapchat just raised is more than an almost 150 year old newspaper in one of America’s biggest cities with over 25 Pulitzer prizes just sold for. Let that sink in.

What are the implications?

  • Content: People demand content – and a lot of it. Some newspapers have done a great job of moving to mobile and creating a wider array of content (albeit a bit belatedly). There’s a time and a place for all content – even ephemeral and seemingly nonsensical. Certainly there is a difference between reading a random blog and the Wall Street Journal, but the “content kings” of the media no longer control all that is seen and heard.
  • Consumption: The ways in which people consume content will continue to evolve. It’s no longer enough to just have mobile and a Twitter/Facebook account if you want to connect with everyone. You can choose not to engage with new platforms (whether it’s Pinterest, Snapchat, or whatever’s next), but you may do so at your detriment.
  • Value: Gary Vaynerchuk wrote an amazing piece for Medium last week entitled “Value is Subjective. Even When It’s a Little Ghost.” His point was that you may think Snapchat is stupid (disclosure: I do), but there is a huge number of people who find value in it, so don’t write it off. You can examine it and choose to pursue other routes as the best way to move forward with your time, money, or business, but think back to how many people said Facebook and Twitter were stupid. Early adopters of these new technologies and networks, like Gary himself, have created enormous advantages for themselves.
  • Opportunity: Lastly, take heart in knowing that an idea dismissed by many at its inception is now worth almost a billion dollars (relevant context restated: Snapchat is now almost worth what the NYT paid for the Boston Globe in 1993). Get off your butt and go create something, anything. You have no excuse not to. While I don’t buy in to the inflated valuations of Instagram and Snapchat – and I recommend you not chase them or bank on them as your only option – shouldn’t it prove to you that an incredibly simple idea, even one that seems foolish, could be something huge?

On that final note, something to remember about the difference between an idea and execution.

strikingtruths_go-do-it

The Cost of Cheap

Some may have heard the news that a recent building collapse in Bangladesh killed over 1,100 people. Most have not. Disasters happen all over the world, all the time. What makes this different? It was a garment factory for some of the worlds biggest (cheap) brands with deplorable conditions. Ann Zimmerman and Neil Shah wrote a great piece in the Wall Street Journal this weekend entitled American Taste for Cheap Clothes Fed Bangladesh Boom. It is a must read.

Building Collapse

Photo Credit: Andrew Biraj, Reuters

My wife and I walked through the mall this weekend past an H&M store where they advertised a bikini for $4.95 (modeled by Beyonce). $4.95. Let that sink in. If you’ve ever dug into the economics of products like clothing, it means the cost of goods on that bikini is somewhere between $0.50 and $1.50, depending on a number of factors, that include the fabric and the labor itself. That does not include paying Beyonce. People have quickly become familiar with China making just about everything (and typically of rather poor quality), but what people are less familiar with is that even China is becoming “too expensive” in terms of labor. Companies are shifting their manufacturing from China to even lower cost manufacturing countries like Bangladesh, with devastating consequences. There aren’t even basic safeguards for people working in these countries. Over 1,100 people died in this building collapse. In buildings like this and others that have experienced deadly accidents in Bangladesh, clothes are made for H&M, Zara, J.C. Penney, United Colors of Benetton, Wal-Mart, and other major companies. H&M and Zara have made a name for themselves with “fast fashion”, taking inspiration from couture fashion, cutting down the production to shelf time, using dirt cheap labor, and bargain basement pricing. The consequences of these business practices are great profits for these companies along with significant human suffering.  It is absolutely true that offshore production can give people in developing countries a chance at a brighter future with jobs, if done responsibly. This is anything but responsible.

The only way things will change is if people in America and Europe (primarily) start to vote with their dollars and demand change. United Colors of Benetton champions itself as a company of social responsibility. It denied having any connection to the factory that collapsed, until pictures emerged of its clothing amidst the rubble.

Things have to change. I believe we’re doing our part at Mizzen+Main with our commitment to American manufacturing. While people don’t typically make the choice between item A and item B based on where it is made, seeing American made products, or responsibly made products from overseas, helps encourage people to keep in mind the consequences of their purchases.

John Mackey, the CEO of Whole Foods, is probably the best example of what he champions: conscious capitalism. At Inc’s 2013 GrowCo conference, he said America is in “disintegration mode,” and unless businesses, government, and the media behave more ethically and more cooperatively, high unemployment levels and economic decline will continue. Perhaps most importantly, he said “the virtues that made us a great nation are beginning to disappear. Capitalism needs to renew itself, and we need new ethcial foundation for business.”

There is a cost to cheap. A very, very high cost. I encourage you to vote with your dollars and effect positive change. Pay attention to who you buy from and do business with. You’ll be surprised.

What they were bad at was making money…

Things are not going well over at Zynga.

While I always root for companies to succeed, it’s not all that surprising to hear that the company responsible for 1,400 invitations I’ve received to play pretend farming with lackluster visuals isn’t doing well, particularly when they pay nearly $200,000,000 for a company with a history of failures and a poor track record of making money.

A little over a year ago, another app was “on fire” called Draw Something by OMGPOP. It acquired almost 15 million daily active users in 6 weeks. That’s truly an unbelievable figure, particularly because it was a paid app. A bit of analysis by Tech Crunch poked more than a few holes in it’s monetization potential though: people paid a small fee upfront to download the app and in app purchases were “durable”, meaning people could retain their in app purchases (such as color packs) rather than virtual currency like other Zynga games that was “spent”.

But… like a lot of what happens in tech, there was a huge amount of hype with very little meat on the actual bone. FOMO, or Fear of Missing Out, ruled the day. Plus, with so much hype and people engaged, it’s a guaranteed success, right? Where has that not worked out before?

Andrew Carr wrote a great piece recently with some very enlightening insider interviews about the bungled acquisition which has caused Zynga to write down nearly $100 million on the OMGPOP acquisition. The most enlightening quote of all?

“I knew the OMGPOP guys–they were really talented, and really good at making games,” says a former Zynga general manager. “What they were bad at was making money, and they were struggling for a long time.”

The enormous war for talent in Silicon Valley – and the broader tech world – is no secret. Many companies are bought outright by larger ones just to bring in good engineers and developers, with the company purchased being not all that important to the new parent. This “acqui-hire” model is currently being debated in many circles, but it’s clearly not without its major flaws. The biggest flaw has been watching those “acqui-hired” depart as soon as their lockup period expires. Another insider was quoted saying “The cofounders who get hired in will stay for exactly how long it takes to vest in whatever exclusionary clause was in the acquisition. I think there are very few people who are still left who came through acqui-hires…” This has implications, on stock price and profitability, as others see things being run poorly along with hitting employee morale. Says a former designer, “I wish that they would focus in on their own employees a little bit more, because people in there have great ideas.”

When companies focus a bulk of their energy externally, chasing the next hot thing for fear it will overtake them, rather than focusing on creating value internally and building products and services that people are actually willing to spend money for, it catches up with them. Zynga’s market cap at the time of the OMGPOP acquisition was just over $10 billion. What’s a measly $200 million? Zynga’s market cap today hovers around $2-3 billion. One mistake or failed acquisition is understandable, and OMGPOP’s astronomical acquisition price and very real flameout bring a lot of attention; however, it’s clear this strategy has been more the rule than exception, and reality is beginning to set in. I wrote about this problem recently.

OMGPOP did not have a successful track record. The (overpriced) acquisition was mostly based on the skyrocketing (month long) growth of one app and apparently the talent of some of their developers. Some people may disagree with my (and other’s) analysis, saying that talented developers eventually create value, even if they aren’t successful at first. That is completely reasonable. Paying $200 million (for one popular, but fiscally lukewarm success) is not. A great deal of what Apple has built over the last decade has been predicated on acquisitions (touch screen technology, a good deal of the software). Acquisitions are a valuable tool for growth and innovation, when pursued rationally and successfully incorporating them into the company’s already proven innovative ecosystem.

What’s clear is the focus of Zynga has been more skewed towards chasing popularity than creating real value from the inside out.