Polygraph Media Blog

"Old Media" Learning from New, Explosive Growth Companies?

Over the last five years, a number of companies have emerged seemingly out of thin air to dominate in a "three screen", computerized world (mobile, tablet, computer) and grow explosively. Think Facebook and Groupon in the publicly traded realm... in Austin we have Chaotic Moon Studios, Mutual Mobile, and AppSumo.  Of this group, only Facebook existed in 2007.  Yet all are growing like a weed.

They all have one thing in common -- they saw opportunities, a market need, and a clear path to monetization that was also capable of scale.  In each case, once they found success, they hit the accelerator rapidly.  And none of them have debilitating geographic limitations that can't easily be overcome.

A number of my friends, colleagues, and acquaintances in traditional media want to capture that lightning in a bottle -- and are now putting plans in place to do just that.  What will they need to do to succeed?

Fill the toolbox with relevant products -- think about what the target market wants and offer it to them.  There is a revolution going on in mobile and social media.  Hop aboard!  For mobile, that might mean offering apps, mobile advertising, and mobile optimized web sites.  For social, it means helping people keep their sites & social properties up to date, social advertising, how-to webinars, and metrics to be the ultimate scorekeeper of what is working and what is not.

Modernize the sales force & think creatively about the sales process -- Your sales force is perhaps one of your biggest assets, and a huge differentiator from other entrants who have no sales force.  But all too often, they're not motivated to modernize.  Progress means selling new things *and* maintaining cash flows from the old cash cow businesses.  Sometimes your sales force can be a part of this transition, but in other cases they just need to be disrupted.  Broaden your thinking of what a sales process is -- it might make sense for your reps to change, and/or future product sales may not even require a sales rep after all.

Invest in true innovation -- they say in technology that you have to skate to where the puck is going to make good bets for the future.  What pain points will your customers endure in a few years?  That's where they're likely to spend money.  Give thought to it, and plant seeds there alongside existing opportunities.  Some of those new things are tomorrow's stars, if you commit to them as the examples above did.  But they also will never graduate if you don't give it a real chance.

Make geography irrelevant -- Geographical constraints are expensive -- forcing you to invest in on-site salespeople and/or support staff.  Try to make geography less relevant over time to both generate new leads and to find sources of revenue that are not necessarily in your specific locale. This may force you to do some things differently, but that's OK if you can be truly geographically agnostic.

Embrace the potential of a services organization -- For bigger businesses, non-profits, and other customers, you may find that you can make more money providing support or fulfilling maintenance contracts than you would selling your core product.  A services organization, built and integrated into the sales process in the right way, can be a highly profitable yet valuable part of your product offering.

Interestingly, many services organizations and agencies are aggressively moving in the direction of offering products.  They're reinvesting cash flows to compete.  It's a smart move, but it means that old media is getting another round of competitors -- probably the last thing it really needs to stay on top.

Groupon, the S-1, and the state of the group purchasing market

A few quick thoughts on group purchasing this morning.  We have a pretty unique perspective on this business because our first launch was a local coupon platform.  We considered adding group purchasing to our product, but we did not initially do so for a few reasons all related to the fact that we didn't think the business was sustainable.  First, we thought the discounts were too high for most small businesses to bear long-term.  Second, there was no apparent long-term competitive advantage as the technology and business process could be easily replicated.  Ergo, millions of dollars would have to be spent on customer acquisition in a business where competition would drive down operating margins.  i.e. bad and worsening economics = no thanks.

Several things happened throughout 2010.  Millions of dollars were being earned by Groupon, LivingSocial, and the hundreds if not thousands of blatant knockoffs built by enterprising developers around the world.  It wasn't easy answering questions about why we didn't take advantage of this opportunity, and we were starting to question ourselves in the process.  Even our partners started to ask about group purchasing more and more as the "lore" of "millions" of "easy profits" became legendary.  We reluctantly added group purchasing to the Lasso platform in early 2011, but not without the reservations that we always had about the economics of the business.

Around that time, we had also been brought in to talk about group purchasing with a few companies who were not making the money they expected to make with it.  We pretty consistently heard problems related to the economics -- either customer acquisition was tougher than expected, the merchants were pushing back, or both things were happening.  I remember saying sometime to someone (can't remember who) in the early spring that the worst job in the world was being an oppressed group purchasing salesperson.

Now after reading Groupon's S-1 in detail, I am a little stunned at just how bad the economics of group purchasing are playing out even for the "market leader".  I thought second-tier competitors faced a much bleaker situation than the market leaders.  But if Groupon is suffering, who isn't?  Maybe the entire group purchasing industry is just a big money burning machine.

Folks in the local media business have taken a lot of criticism over the last decade for failing to modernize their businesses -- more or less for focusing on revenue and not on new business models.  That criticism is pretty fair, but it is what it is.  Local media companies have operated profitably for many years by doing the same things -- so why would they change significantly especially when executive management just has to keep chopping wood to sail into the sunset for a very comfortable retirement.

But here's what's a bit horrifying for technology folks -- critics at local media companies may just be correct to ignore group purchasing.  Unless something changes pretty significantly, group purchasing is headed down a path of other overhyped "technologies" that just don't make economic sense.  Group purchasing was considered to be a "no-brainer" just a year ago.  Now after reading the S-1, do you still think it is a huge opportunity.

Consider a few numbers from the S-1:

• Groupon lost $420m in 2010 and $117m in Q1 2011.
• Groupon earned $713m in 2010 (far less than the $1-2 billion reported elsewhere), but did earn almost $700m in Q1 2011.
• Marketing + SG&A was 178% of Gross Profit in 2010 and 143% in Q1 2011.  Yowza.

So all the numbers say at present is that you can make billions of dollars in revenue if you spend billions and more.  I can walk around my neighborhood and give away $1.25 for $1 all day long. :-)

But in all seriousness, the S-1 was really the first time the general public got a look under the kimono of the world's leading group purchasing provider.  Here's what it told me:

1. Groupon can't continue as is forever.  They'll have to get more efficient and/or eliminate some competition.
2. They'll have to become considerably more innovative.  Groupon Now is one such innovation, but even that will take considerable marketing funds and great execution to work.
3. Being a group purchasing provider is a really terrible business at scale.  I don't doubt that smaller companies can be profitable winning a niche, but local group purchasing done at scale all around the world is tough especially as competition intensifies.
4. Group purchasing, as it currently exists, cannot win the local advertising market.  In a business where nobody involved in the transaction truly wins -- the provider or the local business -- interest will fade.
5. New media companies that thrive in the coming decades will effectively combine content, local advertising, and services for advertisers as an agency would.  I particularly like the work that our partner, Culturemap, has done with their "hybrid" new media play.

Deal data has always been the name of the game -- and will define the future of this business.  This is why I like aggregators who rise above the fray -- Yipit is one such company.  It's also why I think Facebook has gone the aggregation route as well.  More to come on this as it all plays out.

Thoughts for Corporate Marketing Executives

This post is a long time coming -- as our company has shifted focus a bit to brands, I have been thinking a lot lately about how bigger companies make decisions and draw conclusions about social media and where the will focus attention.  For every person who says that they want to increase Facebook investments (a good idea considering the data), there is a person who says that they also need to increase investments in QR codes or Instagram (a bad idea considering the data).  This coming from a set of customers that is supposedly concerned about Social ROI?

Pardon the generalization, but I've found that corporate middle-manager thinking about marketing is about as paradoxical as it gets.  The world's best companies optimize their operations and their marketing campaigns on data.  The top companies hire the best and brightest from the world's top business schools to analyze outcomes and redirect tactics.  Yet when it comes to marketing and social media, I often hear the most optimistic and laughable things about social media from brand stewards and corporate marketers.  Some of the biggest cheerleaders about social media come from the corporate world.  Their observations are based on personal preferences and usage patterns, and are devoid of persuasive statistics as if numbers are unimportant.  Very few (when pressed for specifics) can tell you that a meaningful business outcome improved dramatically because of using anything other than Facebook and maybe Twitter.

Why is this the case?

1. Individuals want a job in a hot startup & get attention by showing support.
2. Individuals want to stand out from their "moribund" corporate employer that "doesn't innovate".
3. Individuals are not held to a high standard about "data-driven" thinking.
4. The brand's need to "innovate" outweighs the need to develop Social ROI.  Put differently, the brand needs to connect with younger demographics and is willing to accept some inefficient spend to experiment.
5. Agencies and experts dominate thought leadership, and the echo chamber is winning.

The first two make a lot of sense when you consider the divergent interests of individuals and the companies they work for.  A middle manager may be making a great career move by encouraging new technologies -- it may land him/her in a job, an advisory role, a spot among experts in the social media community, VIP invites at events, etc.  Individual branding trumps all in today's world, and that's just a reality of marketing in the present day.

#s 3 and 4 are more management issues -- which may or may not be an accident.  Brands seeking to redefine themselves, especially those that are viewed as being "old fashioned", are desperate to do anything that appears to be innovative.  A handful of experiments may just provide the serendipity needed to do something meaningful and important down the road.  But I find all too often that the middle managers report to senior executives with very little understanding of social media platforms, much less how to use them for marketing purposes.  Sorry, but if you don't use at least Facebook regularly, it's hard to coach middle managers on what success looks like.  So often times, middle managers are really creating the agenda for "social marketing" whatever it means, and ROI is tough to get because 1) they may not be doing the right things, and 2) their managers may not know exactly how to improve the situation.

#5 is a misalignment of incentives.  Over the last decade, agencies have done a particularly crafty job of getting between corporate marketing dollars and technology providers who make things simple.  Agencies have sold social media marketing, management, monitoring, community management, and a wealth of supporting platforms as a cocktail of unnecessarily confusing, yet important set of tools that any "smart" business would utilize.  Of course, managing it all is easier if you just hire the agency. ;-)   A vast majority of thought leaders work for the very agencies that have gotten so adept at selling this complexity to the corporate world.  Oddly enough, the skill sets required to conduct good social media marketing and community management are not terribly complicated.  But because corporate marketing groups don't yet have the talent to develop an internal competency -- intern to executive -- they outsource this.

But to repeat -- the very people selling highly profitable agency retainers to your company are the ones setting the thought leadership agenda.

Now before anyone accuses me otherwise, I am a friend to agencies.  There are a lot of great people in agencies and I have a lot of friends there.  But if you're an exec managing a brand, you have to recognize this dynamic to do your job well.

I suspect that this tech boom cycle will end a lot like the last one.  Companies that provide real value will survive.  The vast majority that don't will not survive.  Brands and bigger companies will gradually bring things in house as they get smarter.  As new technologies mature and get "less cool", investments in them will wane.  Investments in things that truly do move the marketing needle will increase and will disrupt the old way of doing things... much as you're starting to see investments increase in Facebook over existing web sites and e-mail.

But the way to get ahead of the curve today is to rein in middle managers and talk in terms of data -- measurable success.  That is, if you really care.

The Conversation with Cathy Brooks

I was on with Cathy Brooks yesterday -- it was an enjoyable conversation if you have an hour.  We talked social etiqutte, social media, disruption, hype, the book, and a variety of other topics.

AOL, the Huffington Post, and the assault on local

Today is a watershed day in new media, whatever it is that we're calling it in 2011.  Why?  Because AOL is now truly doing something interesting in the content business by buying one of this cycle's best content properties, the Huffington Post, for $315 million.

Sure, AOL spent 40% of its available cash on the property.  Yes, there will be a culture clash as HuffPo is integrated into AOL.  And of course, we've heard of issues with AOL's integration of TechCrunch.  

But this isn't the same AOL that distributed tons  of these discs via mail for more than a decade.  It's a company led by someone with experience at a market leader who has a vision for the future.  That vision requires that AOL repeatedly produce profitable content -- something that old media has certainly struggled to do lately.

The TechCrunch and now HuffPo acquisitions, however, tell me that AOL has determined that it is a better strategy to buy great properties than to build them.  Why?  I'd posit three reasons:  1) these are properties that have discovered how to create quality content sustainably, 2) these properties make money, 3) AOL's experiments with Patch and Seed likely have not succeeded as they've hoped.

But the last reason isn't necessarily a criticism of AOL.  If you look at business across the United States, one megatrend that we're seeing is that big, relatively antiseptic brands are winning the war for $$ and mindshare against local businesses with local/regional flair.  Like it or not, eyeballs and attention flock to Chili's, the HuffPo, and the NFL instead of Billy Bob's Bar & Grill, the Smalltown Gazette, and high school football.  The American experience is homogenizing right before our very eyes, and as such brands that specialize in products with mass appeal will likely win in the long-term over local providers that struggle to effectively reach a local audience.  Niche businesses will survive, but a vast majority of local businesses are going to continue to suffer as the local experience gets more corporate.

I'd argue that these trends are driving the content business and will continue to do so.

We will see what happens with AOL's play -- one that puts it in Demand Media's neighborhood and clarifies competition with old media.  It's on.  I think the early advantage is in companies like AOL & Demand who are driven by the unit economics of creating content far more than old media as a generalized whole.

Old media has two other distinct disadvantages: 1) significant overhead, and 2) traditional "journalistic" standards.  But as an industry it is much, much larger than AOL or Demand Media and can still compete if meaningful changes are forthcoming.  And you can argue that neither AOL nor Demand Media have quite yet figured out how to scalably create great content for profit.  It will be an interesting battle to watch in coming years.  Consider also that of the major tech players only Apple, Yahoo, and Amazon have made major content plays.  Are Google, Facebook, and Microsoft next to jump in?

It's possible that as old media continues to be disrupted, that content is the next bubble.  We'll see how the industry responds.

Analyzing eMarketer SMB stats on useful social marketing tools

Those of you who have followed this blog for awhile and some of the guest posts we've written on Mashable, ReadWriteWeb, Forbes, and other places know two things about me:  1) I'm a data junkie, and 2) I don't really have a lot of respect for "spin" in the startup world.

It's why I questioned the utility of location-based services last year and asked for meaningful metrics (which we still haven't gotten).  It's also how yesterday's guest post on Mashable came about -- we're seeing metrics that indicate that although group purchasing as a sector is alive & well, it has peaked for individual providers and certainly local businesses.

I am not naturally a curmudgeon.  I just think that if you really want to know what is happening, you have to look at where the numbers are and how they are trending.  Metrics trump all -- the coolest technology, the best PR team, the best venture capitalist.  All win and lose most of the time based on numbers.

So I was interested to see some great numbers from eMarketer this morning on what small businesses  think of different marketing outlets.  Here's the chart in case you missed it.

This is great data.  I'd prefer a slightly larger sample size than 752, but it is good enough to draw inferences.

I think the way the data is presented is a little misleading -- so I did some basic number crunching of my own.

Specifically, I wanted to understand just what local businesses really think of each one.  For every person who likes each service, how many dislike it or find it ineffective.  I also wanted to correlate the numbers other criteria -- specifically what the service provides a small business, whether or not they sell directly to the small business or have a low-touch model, how large the audiences are, etc.  All of these things play into something that local businesses can regard as good opportunities for advertising/marketing dollars and attention.

First, I wanted to 
determine awareness/usage.  To do so, I'm making an assumption that anyone who comments one way or another on the utility of a platform for marketing is definitely aware of the core features of each platform, probably has tried the platform, and has *possibly* used it in a business context.  These numbers pretty much make sense to me, although I was surprised to see that people have an opinion of foursquare almost as much as Yelp or Groupon.  That isn't a stab at foursquare, but LBS adoption overall (foursquare + competitors) is something like 5% worldwide, yet 26%+ of local businesses feel qualified to opine on its usefulness for marketing.  So the concept of LBS is known more than adoption at the moment.

Next I wanted to understand what's known in quant research/customer satisfaction parlance as "the top two boxes"... i.e. what are the % of folks who think that something is either excellent or very good.  In this case, it's "very beneficial" or "somewhat beneficial."  See below for the results.  Column E is the % of all polled SMBs who regard each platform in the top two boxes.

But that isn't the end of the story.  These web services cluster into 3 groups when you look at the percentage of people who aren't users.  Facebook is more or less ubiquitous, but still almost 1 in 3 SMB owner/operators have not used it.  Roughly half SMBs have not used Twitter, YouTube, LinkedIn, and MySpace.  And roughly 3 in 4 SMBs have not used Groupon, Yelp, LivingSocial, or foursquare.  So we must normalize the data to give us a clearer picture of what the people who have used each tool actually think.

The chart above is really astonishing to me.  81.5% of SMB Facebook users think it is effective for marketing.  That's an amazing number.  On the opposite end of the spectrum, a little more than half of SMB users of Yelp, MySpace, Groupon, LivingSocial, and foursquare (in that order) think those products are effective for marketing.  Now let's look at the other end of the spectrum -- of SMBs that use all of these tools/services, which do SMBs think are relatively ineffective for marketing?  To assess that, we'll need to analyze the "Not Beneficial" numbers:

The "Not Beneficial" numbers in Column H all look similar across the various platforms -- but they have a hidden meaning when compared against the total % of respondents who have an opinion about each platform.  Of SMB users who responded to the eMarketer survey, almost half of the actual Users question the effectiveness of MySpace, Groupon, LivingSocial, and foursquare for helping them achieve their needs.

All in all, eMarketer's report was fascinating and gives us a good idea of what SMBs think.  Granted, SMB in and of itself is not a segment.  SMBs are in hundreds of types of businesses, many of which are not suited for individual local, social, or mobile platforms.  So the numbers don't necessarily tell the entire story.  But they do tell us who is winning so far and what constitutes a platform or platforms that SMBs should pay attention to.

One final note... it would be very interesting to compare these numbers to old media means of advertising:  yellow pages, billboards, newspapers, radio, television, etc.  I'd love to see how these "new media" services compare to old media.

Latest Mashable Blog Post - LivingSocial & Amazon

Yesterday around 1:20pm, I succumbed to the maelstrom of social media wonderment and became the 645,773rd person to buy $20 in Amazon merchandise for $10.  I reacted much like I'm sure you did -- "it's a no-brainer!"  I will use the proceeds to buy a book or two for my wife on our Kindle.

I thought I'd share some additional thoughts on the guest post Mashable was so gracious to post -- it is the second time they've done so for me.

Quick administrative note/disclaimer first... posts for places like Mashable have to be a little edgy and controversial to get shared, commented on, mentioned, and read.  The end product was a little different than my original thoughts.  They always are.  :-)

And the Mashable team changed the title... the focus of the article was really more about why the LivingSocial-Amazon deal is really the beginning of Social Commerce 2.0.  No worries.

Now, to elaborate.

First of all, what a clever way for Amazon to maximize the value of their investment.  I don't know the terms of the revenue split between LivingSocial and Amazon, but I imagine this was part of the plan all along.  Amazon makes an investment & sets aside a little extra money to cover a planned group purchase.  They use the strength of the Amazon brand among consumers to create a no-brainer deal that would help both LivingSocial and Amazon acquire new customers.  They made the amount of the transaction high enough for people to share & care, but not so high that it was a total loss for Amazon, which runs a pretty tight ship as it is.

LivingSocial gets inexpensive customer acquisition and tons of new accounts.  Amazon uses its strength in the marketplace to dramatically increase the value of its investment.  Everybody plays, everybody wins.  It was *brilliantly* executed by all involved.

As CEO of a company in the social commerce space, I can tell you that this very much fits in to the broader picture of trends we are seeing with group purchasing and social commerce:

1. The increasingly crowded group purchasing landscape has made it tougher for the various competitors to attract the top local advertisers in almost every market.  Consistent deal quality has suffered tremendously.  So there are more tanning beds, teeth cleanings, and acupuncturists -- and all of them are more "niche" businesses that are by definition less interesting to the mass market of consumers.

2. Group purchasing has therefore gotten less effective at the local level, and leading providers are now seeking top national/international brands to do group purchasing deals (e.g. Gap, Amazon, etc.).  Late entrants have struggled as, well, they're late to the game.  Margins shrink for all the "technology providers."  Advertisers aren't as happy and are getting pitched frequently as sales pressure intensifies on group purchasing providers.

3. However, consumers still respond to group purchasing as long as the quality of the deal is very, very high.  The Amazons/Gaps/best restaurants/best retailers of the world do a lot better than your aforementioned neighborhood acupuncturist.  So group purchasing (as it has been defined thus far) is less special and looks more like any other marketing tactic with every passing day.  i.e. if you are running marketing for an established and/or successful entity, you're at a huge advantage over someone who isn't.

4. Despite what a deal like this may make you believe, consumers have *no* loyalty to individual group purchasing providers today.  Consumers just want to save a buck at places where they know they'll shop anyway.  The Gap and Amazon were successful because of who they are, not because of the plumbing (Groupon and LivingSocial) that allowed people to buy gift cards.

5. Brand/corporate advertisers and their agencies can effectively run these types of campaigns themselves and they will as they get more savvy.  They'll also do so for the cost savings.  The technology is there for companies to take matters into their own hands.  Most have captive audiences already in Facebook pages and e-mail lists, among other assets.  All you need is a great deal to offer and the right social commerce middleware (which we have - yes I can say that because you're on my blog).

6. Ergo, brands and people with big audiences ultimately get more and more competitive with time, and they win in the end.  It may take ten years, or it may take two.

Whether we're talking with big, recognizable brands, major media companies, or major companies, it's all the same.  Inertia is out.  Action is are in.  Audiences are again the key. Technology helps major players tap into the audiences.

And most importantly, this LivingSocial/Amazon deal just higlights that there is no brand affinity in "deals".  Consumers will go where they can save money at places where they want to spend money. The company to scale this capability wins and becomes Groupon 2.0.

It will be a very interesting 2011 as this next phase of social commerce begins to shake out.

Newspapers & Local Media Fast to Adapt?

Interesting article today from The Economist about how newspapers are modernizing operations, making cutbacks, and gearing up to compete in the 21st Century.

Popular opinion is that local media has not adapted to new technologies.  Certainly, reaction has been slow in a lot of places.

That said, this article communicates a contrarian point that jives with what we're seeing in the marketplace.  Old media has certainly awoken to the realities of new media, and are now aggressively adding new offerings to their product mix on both the editorial and advertising sides of the house.  They're running leaner and stronger, and I expect that (like the purported demise of the music business) we won't see the fall of local media either.

It was only a matter of time for big media to begin to make sense of it all, and we're just now seeing it.  Expect more here.

The Disruption of Publishers & uncool annuities

I'd like to think that I'm gaining a pretty interesting perspective on the disruption of the publishing industry.  As I've pointed out before, I was instrumental in the conversion of Stratfor into a web publisher in 1999.  I got a crash course in Internet Advertising in 2002-2003.  I've been the tech editor of one book and the writer of a second book over the last two years, so I've met a lot of folks in the book business.  And over the last year, I've been talking with folks in the newspaper business at a variety of families, big and small.

I think Marc Andreesen had some great yet unrealistic comments in the recent TechCrunch article, "Burn the Boats".  Sure, most publishers need to make their businesses more Web friendly today and without delay.  But put yourself in the shoes of an executive at one of these companies... can you honestly say you'd ignore cash flows from legacy businesses?  Especially when those cash flows are 1) admittedly declining yet significant, and 2) the only thing you really have?

Newspapers, television, and book publishers are all the same -- just with different challenges. Their businesses are being modernized, but each has put systems in place to maximize old revenue while experimenting with ways of bringing in new revenue.  Some prioritize the old revenue more, others are more adventurous.  Some put more investment dollars into new businesses, some less.  Some treat new technology with great enthusiasm, others with suspicion.  Some are quicker to analyze the impact of new technology on the old business, and others are quicker to experiment. 

Just about all companies that go through this transition have one thing in common -- they're woefully uncool.  They're uncool because they do a lot of things to preserve the old business that outsiders and tech early adopters simply don't understand.  I've made the case before on this blog that Microsoft is one such business.  Although I didn't make these decisions at Microsoft, I had a pretty good idea of the problem Steve Ballmer and other execs faced every year when prioritizing investments.

Here's a hypothetical example.  Say Steve has $1 billion in discretionary investment dollars that he can deploy across a variety of businesses.  So he decides to host leaders of a variety of business units so they make their investment ask:

• Office -- $400 million for an advertising campaign in the BRIC countries in 2011 that will generate an incremental $1.5 billion in company revenue over the next 5 years.
• Windows -- spending an additional $300 million on anti-piracy technology and an advertising campaign will result in $1.2 billion in incremental company revenue over the next 4 years.
• Office Live -- $250 million needed over 5 years to create a new Web-based Office integration product.  Product will be revolutionary but will be given away for the first 3 years, followed by an anticipated $200 million/year annual business.
• Server and Tools -- $500 million needed to accelerate development of additional Windows Server, SQL Server and developer tools features necessary to help enterprises build better client applications.  Total estimated impact to Microsoft across all businesses is $400 million/year starting in 2014, and is needed to also preserve other parts of the Client business.
• Azure -- $550 million in additional server capacity to support the growing business.  Impact unknown -- an additional $100-$400m/year in revenue is expected.
• Mobile advertising -- $800 million for new mobile advertising business unit, mobile provider partnerships, advertising campaign, and rollout of new location-based advertising initiative to advertisers.  $400 million annual business is estimated by 2015.

For those of you keeping score in our hypothetical example, that's $2.8 billion in new investment asks with only $1b to spend.  There are requests across old businesses and new businesses.  Some asks are inherently more speculative, while others are more certain.  All decisions are not made in a vacuum -- there are pressures to bring predictable returns to investors while modernizing the business at the same time.  Saying "it's complicated" would be grossly underestimating the problem.

I think my hypothetical example is a lot more real than most people would like to admit.  Most executives at publishing companies -- newspapers, book publishers, and television -- are dealing with similar issues every day.  

Disruptors are sexy because they don't have to deal with legacy annuities.  They have a business vision and they need to execute on it and it alone more or less.

What incumbents lack in agility (because of those cash flows), they make up for with... well... those annuities.  Even in decline, those annuities are significant and thus can't be ignored.

I am not saying anything new when I say that the best executives and the publisher incumbents that win will be the ones who effectively balance the needs of their organizations.  Jump in to new technology too fast, and you'll diminish those annuities prematurely.  Jump in too late or let process overtake you, and you'll miss the wave.

So should publishers burn the boats as Marc Andreesen suggests?  Maybe not yet.  But it's time to hunt in the jungle because you may just be here awhile.

Optimism

In my last blog post, I shared with you my 2010 resolution to point out more of the positive things that I see.  What better way to do that than to share some optimistic thoughts I have about the future.  Maybe the contrarian in me just can't accept conventional wisdom that everything is awful.  Everywhere I look, I see reasons to be optimistic about the future.  Here are a few places where I see some positives going into 2010:

• U.S. Economy -- Amidst the financial crisis and high unemployment is a relatively affluent and inventive nation -- we are a people who does not stay down for long. We embrace ideas and we're tolerant of each other for the most part. We fix problems and we make life better in the end. Sure, we have some trouble as a nation right now. And we're spending money like we have it for reasons that still escape me. But people get creative when they're pressed. We've faced a rough patch in the economy, and now people are dusting themselves off and reinventing themselves to be more competitive. We'll start to see the benefits of this in 2010.
• Austin -- Look around, Austinites. This city has not even remotely faced the same economic problems of other cities in the United States. There are a lot of reasons for this -- some economic, some political. So we've been pretty fortunate in this turn. What's the impact for entrepreneurs? More people than ever want to live here. As such, there has been a much needed influx of talent from the West Coast (California & the Pacific Northwest). Add that to the fact that Austin is flush with talented developers, and you have a city that is ripe for further technology entrepreneurship. It's all looking great for Austin in 2010.
• Entrepreneurship -- The revolution brought about by eal-time and social media technologies are creating a ton of opportunities for tech startups.  Advances in clean energy and bioscience are fueled today by big government investments and increased M&A activity respectively.  Other types of startups can rest assured that building a business today in lean times is great -- rising tides raise all boats, so if you can compete in 2010 you'll be even better positioned for beyond as the economy picks up again.
• Old Media -- Yes, the newspaper business is in serious trouble.  But it isn't over for big media companies who still have a significant local presence.  Many large local media companies have had a brutal 2009 -- cutting staff and getting more efficient as they figure out how to modernize their business in 2010.  But this is exactly what is needed.  It's a first step amongst many that will convert local newspapers that survive into tech-savvy 21st century publications that fully embrace the fact that distribution is now a digital, and not a physical problem.

Let's see how all of this plays out!