12 July 2011 — Online marketplace eBay is likely to have to increase measures to stop the sale of counterfeits, following today’s judgment from the Court of Justice of the EU.  The Court’s ruling on questions referred from the UK High Court in a case between L’Oréal and eBay has just been released and it makes grim reading for the online marketplace.  The Court rules that the operator of an online marketplace cannot be exempted from intellectual property rules and rights.

For some excellent analysis from our colleagues at The IPKat click here.

But there was also a revelation:  technological innovation may be very cheap and accessible but that does not mean marketing acumen comes along with it.  One of the big issues discussed at last week’s BEA by book and music publishers (a complaint, really) was that despite the proliferation of Kindle e-readers, iPhones and iPads they still struggle to sell titles beyond those that already dominate traditional best seller lists or pop charts.  The long tail is not selling as expected.  

Surprise!  Publishing does not know how to market e-books yet and they need physical retailers to survive as showrooms for their titles.  Barnes & Noble had a major presence at the event and representatives said that many of its e-book sales take place in its stores, as customers order digital editions of the titles they see on the table of staff recommendations.  Browsing on a browser is just not as satisfying. 

Wow.  So maybe that justifies (explains?) John Malone’s bid for Barnes & Noble this month: the combination of its stores with the Nook e-reader … which has claimed 20-25% U.S. e-books market.    

And that was a big theme at BEA: viewing the digital product line as a complement, not a replacement, for the physical book.  Plus what many publishers called “distinctive” books that “really surprise when seen, touched, picked up.”  On area where this is demonstrated:  children’s books, which are seen as relatively digital-proof.  Said Robert Miller, group publisher for Workman Publishing and a major industry player:  “Parents want to buy their kids physical books.  It’s a [unique] pleasure of sharing a book with one’s child. Parents want to give them as gifts, hand them down.” 

At the FT forum, bookstores were urged to become “consultants”, editors “curators”, and publishers “customisers” which followed other discussion that the industry needs to develop high-end, engaging interactive products that will benefit from the re-imagining of the digital content format.  Because many e-books are similar to early films – staged like a play with a static camera – before gradually, people realized what they could do to exploit the medium.

And the other challenge:  continuing to invest in the print product without passing those costs on to retailers and consumers.  Lonely Planet’s publisher said that its new line is much more expensive to produce but they consider pricing very carefully.   A digital product can cannibalize print sales if the price difference is too great, making price parity a necessary goal (trade paperbacks and e-books are essentially the same price). Parity also matters when releasing updated versions of printed work.  The best example given was a book that probably all of us own.  The new, color version of Workman’s bestseller 1,000 Places to See Before You Die will have the same $19.95 price as the original, black-and-white version. 

And as reported by Publisher’s Weekly, publishers have even seen success with print books based on already-existing Web content.   The show was full of stories about people ordering print copies of book versions on free Web site. ”

The other counter-intuitive story:  Moleskine journals (and we all have one, I’m sure).  In an age of increasingly sophisticated smartphones and tablet computers, a surge in sales of Moleskines.  

Yes, functional distinctions in publishing are blurring, as online and digital sales rise.  Witness Amazon’s appointment of Laurence Kirshbaum, a publishing veteran, to head its new general interest imprint.  It is another sign that the digital battle to shape the 21st century publishing industry has been joined.  

And as a concluding note, let’s not forget the enormous power of Oprah Winfrey in this industry who after 25 years on daytime television brought her syndicated broadcast show to an end last Wednesday in the middle of the BEA.  Nobody stands a chance of capturing the audience she built in an era of fewer distractions.   The amount of books she sold through her recommendations was extraordinary.  Can anyone else recreate it?  Individual influencers lack the impact of a mass media celebrity.  Winfrey helped give Amazon’s Kindle its lead in the US market by recommending the e-reader in October 2008.  That kind of “influencer power” is unmatched.

16 November 2010 — Slightly off-topic but two areas I like to follow:  branding and innovation.

So here is how it works (with Steve Jobs somewhat in mind):  inspirational founder leaves business (or is kicked out) in the hands of mere managers.  Overambition and innovations muddy a company’s clear cultural waters. The founder returns, makes smart decisions and reinvigorates staff. Shareholders cheer. 

Ok, that does not always go to plan.  With Steve Jobs and Apple it did.  And also Starbucks.  

Disclosure:  I am a long-time Starbucks shareholder and they have been a client of mine.  We assisted in scoping out new locations in Europe.  I learned the intricacies of retail store traffic metrics, revenue per square meter, retail ROI, etc.  Fascinating stuff.  

And Howard Schultz’s return to the helm at Starbucks appears to be working.  Results released last week confirmed that the world’s largest chain of coffee shops “has its buzz back”. Higher traffic and higher prices boosted growth and operating margins. Forecasts were raised.  As some analysts have said, the turnround is due to changes that only someone with Schultz’s credibility could accomplish. 

What has been amusing is the social media comment that has chastised Starbucks on its decision to introduce flavored coffees and the introduction of Starbucks-branded instant coffee Via (named for the Italian word for “road” suggesting you can take it with you wherever you go). But Via notched up $135m of sales in its first year, and the move to end a distribution arrangement with Kraft indicates “onward and upward” in the take-home market.  Starbucks is also dealing with competition from the fast-food chains (McDonald’s efforts to sell cappuccinos, for example) with a focus on customers prepared to spend a little more on their morning coffee.  But that all shows the expansion of the coffee market toward quality coffee, ultimately creating more demand for Starbucks’ premium product. 

The company’s planned expansion into wine and more substantive food in some prestige locations has also earned scorn on Twiter and Facebook.  But based on preliminary results it looks to be successful in extracting more cash from existing customers.  Having lived in Europe these past 6 years, I have long been able to enjoy wine and beer at Pizza Hut, and a scotch at McDonalds (some have full bars).  These stores are (surprise!) the largest revenue generators in the Pizza Hut and McDonalds chain. 

On the investment side, Starbucks’ shares have quadrupled since the 2008 low.  They trade on a higher multiple than McDonald’s has achieved at any point in the past decade.  But … the burger chain’s 31 per cent operating margin is twice that of Starbucks and sales growth is only slightly slower. As the FT has opined “inspiration only gets a story so far”. 

But  Schultz has mastered the branding and innovation “thing”.  Ok, the brand.  I know the Starbucks mantra of “one person, one cup, and one neighborhood at a time.”  People go to Starbucks for a predictably good cup of coffee and a place that’s predictably clean.    But brands must evolve or die.  And even for a world brand like Starbucks, what they plan will not be a slam dunk.  Are consumers ready to get their morning latte at Starbucks on their way to work (70% of Starbucks business happens before 2pm) and also a relaxing glass of wine on their way back home? 

I have confidence Schultz understands the evolution of the retail food market, or at least his segment.  His purpose is to attract evening customers. It is less costly for the company to expand its business into wine and food in existing stores than to open specific locations dedicated to evening traffic.  Based on initial reaction consumers seem rather agreeable to the idea of having a glass of wine at their favorite coffee place after work or after dinner.  He is adapting to the market.

But we return to innovation.  If you were to ask the average person on the street to define innovation, they would probably talk about gadgets or cutting-edge science: Google, iPads, Android, and so on. However, if you ask business people, they will often point to processes that are deceptively simple.  David Neeleman, the founder of US airline JetBlue, often tells conferences that his best innovations were putting televisions on planes and telling his staff to work at home, not in the office. In its most crude, dictionary sense, innovation is really just about embracing the new, or, for that matter, accepting change, evolution.  A slight tweaking to make the brand better. 

It is no different from the high-tech side. Nokia has tried to break its closed innovation loop by using ethnographers to observe how people use their mobile phones. In Africa they found people trading in calling card minutes, which could be redeemed for cash as a basic kind of banking. In India, they discovered servants were using their mobile phones to find new employers, thereby freeing them from indentured servitude.  Such findings have helped Nokia think about innovative ways of serving huge numbers of customers in emerging markets.  And increase their market share.

And today I swear EVERTHING is undergoing a significant “paradigm shift”.  Technology, media, the law, finance, and on and on.   And so a brand must respond to today’s reality.  The challenge of growth in mature markets is to get existing customers to accept “line extensions”.  All Starbucks has done is to look at overall market metrics, its own metrics, and performance indicators – and measure how they affect one another and adapt to the market.   These new endeavors do not dilute the brand’s original mission.  It in fact continues its brand strategy of convenience just like Starbucks grocery store distribution and Starbucks drive-thrus.  It keeps with Starbucks brand promise around quality, sustainability and community.